easyjet
Annual Report 2015

Plain-text annual report

Annual report and accounts 2015 A n n u a l r e p o r t a n d a c c o u n t s 2 0 1 5 SEE ALL OF THE INVESTOR INFORMATION ONLINE AT http://corporate.easyJet.com/ investors Contents STRATEGIC REPORT easyJet at a glance Our business model Chairman’s letter Chief Executive’s review Overview External environment Our strategy Outlook Key performance indicators Financial review Going concern Viability statement Key statistics Risk Corporate responsibility GOVERNANCE Chairman’s statement on corporate governance Board of Directors Executive Management Team Corporate governance report Directors’ remuneration report Directors’ report Statement of Directors’ responsibilities Independent auditors’ report to the members of easyJet plc ACCOUNTS Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the accounts Company statement of financial position Company statement of changes in equity Company statement of cash flows Notes to the Company accounts OTHER INFORMATION Five-year summary Glossary 4 6 8 9 9 10 10 15 16 18 22 22 23 24 30 46 47 50 52 64 81 84 85 90 91 92 93 94 95 118 119 120 121 123 124 Our journey so far 1st NEW AIRBUS ENTERS SERVICE ‘95 ‘96 ‘00 ‘01 ‘02 ‘03 ‘05 £29 FARES STARTING PRICE ONE WAY easyJet launches its inaugural flights from London Luton to Glasgow and Edinburgh. 310p easyJet floats on the London Stock Exchange at an offer price of 310p valuing the Company at £777 million. 120 NEW AIRCRAFT ORDERED easyJet’s shareholders approve the purchase of 120 aircraft from Airbus with the option to purchase an additional 120 aircraft. Acquisition of Go Fly. 10 YEARS OLD 100th aircraft delivered; 100 millionth customer flown (Stansted to Malaga). easyJet takes delivery of its first wholly owned aircraft and starts international flights with routes from London Luton to Amsterdam, Barcelona and Nice. 5TH BASE IS OPENED easyJet makes London Gatwick its fifth base and becomes the second-largest scheduled airline at the airport. THIS IS JUST THE START>400 ROUTES IN TOTAL INTRODUCTION OF SPEEDY BOARDING >100 ROUTES FROM LONDON GATWICK The landmark of flying more than 100 routes from London Gatwick is reached. Allocated seating introduced for all flights. 7 year DEAL WITH LONDON GATWICK easyJet signs a new seven-year deal at its largest base, London Gatwick, and announces new bases in Amsterdam and Porto. ‘06 ‘08 ‘11 ‘12 ‘13 ‘14 ‘15 135 NEW AIRCRAFT ORDERED easyJet’s shareholders approve the purchase of 35 current generation Airbus A320 aircraft and 100 new generation A320neo aircraft for delivery between 2015 and 2022. easyJet announces new bases in Hamburg and Naples and the expansion of its base in Berlin. 20 YEARS OLD 250th Airbus delivered. After 20 years we can still offer a one way flight for less than £30. ACQUISITION five BASES IN FRANCE easyJet announces two new bases in France at Nice and Toulouse, bringing the number of bases in France to five. easyJet announces its maiden dividend to shareholders. easyJet passes the 50 million passenger milestone. 2015 £29.99 FARES STARTING PRICE ONE WAY After 20 years we can still offer a one way flight for less than £30. Over the past 20 years easyJet has built Europe’s leading short-haul airline, delivering market-leading returns to our shareholders. Our network of primary airports, routes and slots, combined with a clear focus on making travel easy and affordable, enables us to provide a friendly, efficient service with low fares for our customers. We have a strong platform to continue to deliver profitable growth for the next 20 years and be the short-haul airline of choice for passengers across Europe. CAROLYN MCCALL OBE, Chief Executive 1 Strategic reportGovernanceAccountswww.easyJet.comHow 20 years have flown YESTERDAY In 1995 we started with two leased Boeing 737s at Luton airport, flying to Edinburgh and Glasgow. The price of a ticket was £29 one way, the same as a pair of jeans. Net revenue (£ million) Number of passengers (million) £264 5.6 £140 £77 3.1 £46 1.0 1.7 1997 1998 1999 2000 £17 0.4 1996 +93% COMPOUND ANNUAL GROWTH RATE OF NUMBER OF PASSENGERS BETWEEN 1996 AND 2000 28 ROUTES OPERATED BY 2000 1,386 EASYJET EMPLOYEES BY 30 SEPTEMBER 2000 18 AIRCRAFT IN FLEET BY 2000 £66m NET ASSETS IN 2000 2 easyJet plc Annual report and accounts 2015TODAY Turn to pages: 10-15 to see our strategy Today easyJet is the second-largest short-haul airline in Europe, carrying almost 70 million passengers per year with its innovative approach and friendly customer service. We still offer tickets for under £30. 735 ROUTES OPERATED BY 2015 10,104 EASYJET EMPLOYEES BY 30 SEPTEMBER 2015 241 AIRCRAFT IN FLEET BY 2015 £2,249m NET ASSETS IN 2015 £4,686 Net revenue (£ million) Number of passengers (million) £2,973 68.6 48.8 £1,341 £264 29.6 5.6 2000 2005 2010 2015 +18% COMPOUND ANNUAL GROWTH RATE OF NUMBER OF PASSENGERS BETWEEN 2000 AND 2015 www.easyJet.com 3 3 Strategic reportGovernanceAccountswww.easyJet.comeasyJet at a glance OUR TRULY EUROPEAN NETWORK Since day one we have continued to grow our capacity, increase the number of routes and attract more customers across Europe. Our network extends across Europe and beyond, taking our customers to places that they really want to go. We fly to 136 airports in 31 different countries, operating 735 routes. In 2015 we added 95 new routes, offering flights to places like Stuttgart, Pula and Preveza. We are continuing to expand in 2016, adding over 90 further routes to serve our customers’ demands. www.easyJet.com/EN/routemap To see our entire network PONTA DELGADA BASES OTHER AIRPORTS 4 ICELAND SWEDEN ESTONIA UK M A R K D E N RUSSIA D S N E T H E R L A N BELGIUM GERMANY RUSSIA POLAND CZECH REPUBLIC FRANCE SWITZERLAND AUSTRIA HUNGARY SLOVENIA CROATIA ITALY POR TUGAL SPAIN MOROCCO BULGARIA SERBIA K O S O V O GREECE TURKEY I S R A E L EGYPT easyJet plc Annual report and accounts 2015ICELAND SWEDEN ESTONIA UK M A R K D E N RUSSIA D S N E T H E R L A N BELGIUM GERMANY RUSSIA 135 735 routes new aircraft at 30 September 2015 ordered POLAND CZECH REPUBLIC FRANCE SWITZERLAND AUSTRIA HUNGARY SLOVENIA CROATIA ITALY Over 90 135 new routes planned new aircraft for 2016 ordered BULGARIA SERBIA K O S O V O GREECE TURKEY 136 135 airports new aircraft in 31 different ordered countries I S R A E L EGYPT www.easyJet.com 5 POR TUGAL SPAIN PONTA DELGADA MOROCCO BASES OTHER AIRPORTS Our business model How we drive growth and returns Our sustainable business model makes travel easy and affordable and drives growth and returns for shareholders. OUR VALUES WHAT WE DO WE ARE A LOW-COST EUROPEAN POINT-TO-POINT SHORT-HAUL AIRLINE We use our cost advantage and number one and number two network positions in strong markets to deliver point-to-point low fares and operational efficiency, with our people making the difference by offering friendly service for our customers. OUR AMBITION To be Europe’s preferred short-haul airline, delivering market-leading returns. OUR CAUSE To make travel easy and affordable. SAFETY We will never compromise our commitment to safety, which is always the first priority for our people. SIMPLICITY We cut out the things that don’t matter to keep us lean and make it easy. ONE TEAM Together we’ll always find a way. INTEGRITY We stand by our word and do what we say. PASSION We have a passion for our customers, our people and the work we do. PIONEERING We challenge to find new ways to make travel easy and affordable. See the About Us section of http://corporate. easyJet.com to see more about our values See the About Us section of http://corporate. easyJet.com to see more about our values SAFETY UNDERPINS EVERYTHING WE DO 6 easyJet plc Annual report and accounts 2015241AIRCRAFT68.6mPASSENGERS735ROUTES26BASESOUR VALUES WHERE WE DO IT HOW WE DO IT INTRA-EUROPEAN SHORT-HAUL NETWORK Network focused on primary airports serving significant catchment areas. How we do it is about how our people implement our strategy through our unique network, digital leadership, cost advantage and financial strength. This is what sets us apart from our competitors. BUILD STRONG NUMBER ONE AND TWO NETWORK POSITIONS We fly from the primary airports in attractive catchment areas and have the biggest presence on Europe’s top 100 routes. DRIVE DEMAND, CONVERSION AND YIELDS We make it easy to buy our low fares through our website, which has over one million visits every day, and also through mobile devices. People are attracted to the well-known easyJet brand and service offering. MAINTAIN COST ADVANTAGE We are able to provide low fares to our customers by maintaining a low-cost base and by delivering operational excellence. We have low overhead costs and use our aircraft efficiently. DISCIPLINED USE OF CAPITAL We maintain a strong balance sheet so that we can withstand external shocks, such as airspace closure. We maximise the use of our aircraft and have a policy of returning excess cash to shareholders. CULTURE, PEOPLE AND PLATFORM Our people are passionate and friendly. We strive for simple systems and processes. Airports to which easyJet flies Turn to pages 10-15 to see more detail on our strategy Turn to pages 10-15 to see more detail on our strategy SAFETY UNDERPINS EVERYTHING WE DO 7 Strategic reportGovernanceAccountswww.easyJet.comChairman’s letter Continuing to deliver JOHN BARTON, CHAIRMAN DEAR SHAREHOLDER Reflecting another year of growth, I am pleased to report that your Company has delivered record profit for the fifth year in a row, with profit before tax up 18% to £686 million. Celebrating 20 years as a business easyJet celebrated its 20th birthday in November 2015. It is remarkable how far we have come in this short period of time. We have grown to become the second biggest short-haul airline in Europe, carrying almost 70 million passengers a year and we are now an established FTSE 100 company with £4.7 billion of revenue. Over the 20 years we have retained our entrepreneurial spirit and maintained our focus on providing customers with excellent service at a reasonable cost, the main reason for our success. Strategy Our strategy remains focused on delivering market-leading innovation in customer service, whilst establishing a network of routes and frequencies that benefit from strong demand. We continue to see a number of opportunities to grow in a profitable and disciplined way and our announcement of an agreement with Airbus to take delivery of an additional 36 A320 aircraft will help us to capitalise on these. There have been several regulatory developments in the year. We are engaging with the European Union to address efficiency in a new EU Aviation strategy, including overall regulatory structure, air traffic control, regulated airports, levies and taxation. We were pleased with the Airports Commission’s final report in July recommending that the Government expand its aviation capacity in London. We are also encouraged to see the Government engaging on Air Passenger Duty, against a backdrop of evidence that clearly indicates that an increase in air passenger traffic is a contributor to economic growth. 8 Returns to shareholders Last year the Board announced its policy to increase the dividend payout ratio to 40% of profit after tax, in line with the broader market. After another successful year we are pleased to recommend a dividend for the year of 55.2 pence per share, an increase of 22%. People As always, our people have again made a significant contribution to the success of the business. I would particularly like to thank those on the front line, who sustained high standards of customer service throughout the year. We continue to dedicate resource to attracting the right people for the business and in the development and retention of our existing employees. It is the strength of our people that will enable us to meet our ambitious objectives for the future. On the Board, we have recently welcomed Andrew Findlay as our incoming Chief Financial Officer, joining the Company on 2 October 2015. I would like to thank Chris Kennedy for his significant contribution to the successful growth of the Company in the last five years and wish him success in the future. Conclusion We believe that our business model and strategy will deliver long-term value to shareholders. Our clear focus is to fulfil our customers’ needs via a network of airports, routes, frequencies and slots that is unrivalled in European short-haul aviation. This, combined with our fleet expansion plans, gives us a significant opportunity for future profitable growth and increasing shareholder returns. We look forward to another 20 years of success. JOHN BARTON Non-Executive Chairman easyJet plc Annual report and accounts 2015Chief Executive’s review A year of strong performance £686m PROFIT BEFORE TAX (2014: £581M) 22.2% ROCE (2014: 20.5%) CAROLYN MCCALL OBE, CHIEF EXECUTIVE This has been another year of record profits and delivering our strategy for easyJet. We carried an additional four million passengers to reach 68.6 million passengers; we grew revenue to £4,686 million; and we increased profit before tax for the fifth successive year to a record £686 million. Return on capital employed increased to 22.2%(1), another record for the Company. • Load factor for the full year grew by 0.9 percentage points to 91.5%, demonstrating strong demand in a competitive environment. • We increased yield and revenue throughout the year with our market leading digital platform driving and fulfilling demand, supported by our best-in-class Revenue Management System. • Our confidence, both in the demand environment and our structural growth opportunities within our markets has led us to secure an additional 36 aircraft between 2018 and 2021, comprising 30 Next Generation A320s and 6 Current Generation A320s, all in the 186 seat configuration. This will bring flexibility and secure further cost savings of £27 million. OVERVIEW Our markets are strong, with favourable economic and consumer trends. Our core leisure customer is part of a market that is growing strongly every year as people take more holidays and city breaks, complemented by a business travel market that prizes both flexibility and value. • Cost per seat decreased by 3.4%, with benefits from both fuel and currency. Cost per seat at constant currency excluding fuel increased by 3.6%. We have experienced cost pressures that include regulated airport price increases, increased de-icing costs and significant disruption costs. We have mitigated this through £46 million of sustainable savings and we have a pipeline of structural cost improvement to deliver future savings. easyJet has positioned its network and product to capitalise on these trends and has delivered again during the year. Our business model and strategy are continuing to deliver profitable growth and increasing annual returns to shareholders. In particular: • Revenue increased by 3.5% to £4,686 million, with passenger volumes increasing by 6.0% and revenue per seat by 1.5% on a constant currency basis to £64.28, offset by currency headwinds. • Our passengers continue to be attracted by our model of having convenient airports and flights, available at good value. We finished the year strongly with record load factors in both July and August driving revenue per seat up by 3.2% in constant currency in the fourth quarter. • Profit before tax grew by £105 million to £686 million and we increased the profit before tax margin to 14.6% from 12.8%. • Return on capital employed(1) increased by 1.7 percentage points to a record 22.2% (2014: 20.5%), with some benefits from our hedge positions, maintaining our strong market returns. We continue to drive capital efficiency with rigour and discipline, reallocating aircraft around the network to maximise return on capital employed. • We generated £895 million of operating cash flow, reducing our gearing to 14%, thus further strengthening our balance sheet. • Reflecting the strong financial performance during 2015, the Board has recommended a dividend of 55.2 pence per share, an increase of 21.6% from the prior year, in line with its policy of paying 40% of annual profit after tax to shareholders. (1) Return on Capital Employed shown adjusted for leases capitalised at 7 times. 9 Strategic reportGovernanceAccountswww.easyJet.comChief Executive’s review continued EXTERNAL ENVIRONMENT easyJet operates in the short-haul European aviation market, which has seen strong underlying demand throughout the year. easyJet’s focus is primarily in Western and Northern Europe, where there is a high propensity to travel and deep, rich markets. Economic trends are currently favourable, with GDP growth in our main markets. The UK is the strongest country in terms of absolute GDP performance in 2015 and we continue to see an improving outlook across all of our other major regions. In addition, consumer confidence is growing in those markets, which we expect to support growth in economic activity. These positive trends, combined with our market positioning, are reflected in strong demand for our services. The total European short-haul market(2) grew by 5% year-on-year in the 12 months to 30 September 2015, sustained in part by a continued low fuel price. Low cost carrier share of the short-haul market increased by around one percentage point to 42%. In the same period, easyJet’s competitors increased capacity by 7% in its markets, with particularly strong growth in the UK market. Over its financial year, easyJet increased capacity by 5%, with growth of 4% in the first half increasing to 6% in the second half. Whilst the overall short-haul market has grown over the last 10 years, the low-cost carriers have taken significant market share, as the legacy carriers have cut mainline capacity across their networks in order to address their lack of competitiveness. At the same time the legacy carriers are transferring capacity from their flag airlines to lower-cost subsidiaries such as Vueling, Eurowings and Transavia. In its 20 years of existence, easyJet has grown its own market share as part of that low cost growth and now has an estimated 8% of the European short-haul market. We see a number of opportunities to increase our market share. easyJet has delivered a strong performance against this competitive backdrop, demonstrating the strength of its model and implementation of its strategy. With a track record of high growth across economic cycles, strong underlying demand, as well as our relatively low current market share, we continue to see opportunities to deliver further growth over the medium term. Our strategy easyJet is confident that through its strategy it will deliver sustainable growth and returns for shareholders. SA F E T Y 1. BUILD STRONG NUMBER ONE AND TWO NETWORK POSITIONS S A F E T Y 4. DISCIPLINED USE OF CAPITAL 5. CULTURE, PEOPLE AND PLATFORM 2. DRIVE DEMAND, CONVERSION AND YIELDS S A F E T Y 3. MAINTAIN COST ADVANTAGE S A F ETY (2) Capacity and market share figures from OAG. Size of European market based on internal easyJet definition. Historical data based on 12 month period from October 2014 to September 2015. 10 easyJet plc Annual report and accounts 20151 BUILD STRONG NUMBER ONE AND TWO NETWORK POSITIONS easyJet flies to a network of primary airports and routes that tap into deep, wealthy markets with populations that have a high propensity to fly. We have chosen to establish ourselves at the right airports, serving valuable catchment areas that represent Europe’s top markets by GDP, driving both leisure and business travel. This is also where strong markets already exist, built up over a period of time by legacy carriers. We have the opportunity both to capture further market share and to grow the overall market. Driven by strong underlying demand and an attractive customer proposition, we will continue to invest in growing our network. We operate more of the top 100 routes in Europe than any other airline and our route frequencies deliver choice and flexibility for our customers while increasing returns. Our competitive advantage is reinforced by the overall portfolio of peak time slots at airports where either total slot availability or availability at customer-friendly times is constrained. We regularly review the route network in order to maximise returns and exploit demand opportunities in the market. During the year we added a net 60 routes to the network, slightly more than last year. These were allocated to new bases, such as Amsterdam, Hamburg, Naples and Oporto, and to markets where we want to consolidate our position and grow our share, such as Switzerland and Italy. We have recently announced new base openings in Venice and Barcelona. Our plans for fleet expansion will help us to capitalise on expected demand in markets that we understand. Over time, increased route maturity and greater numbers of frequencies have contributed to increasing profitability and returns. We continue to establish stronger leadership positions in all of our markets, to achieve the aim of holding the position of number one or number two in each market. We currently have 52% of our capacity in airports where we have the number one position by share and 83% as one of the top two. Progress in our main markets is as follows: United Kingdom easyJet is the UK’s largest short-haul airline, where we have a 20% market share(2). At year end the UK had 134 based aircraft. We are continuing to reinforce our already strong position in the UK market, both London-based and regional. easyJet remains the number one carrier by market share at almost all of its UK bases, including its major bases of London Gatwick, London Luton, Bristol, Belfast and Edinburgh. Our positioning, market share and airport bases are driving both leisure and business passengers. We increased capacity by 3% in the twelve months to 30 September 2015, launching new routes such as London Gatwick to Stuttgart and London Luton to Essaouira, while continuing to increase frequencies on selected routes. Our competitors increased their capacity on our markets by 9%. France easyJet is France’s second largest short-haul airline with a 14% market share. At year end France had 26 based aircraft. We see opportunities to grow our market share in France, leveraging our competitive market position, adding capacity at Charles de Gaulle through up-gauging and strengthening our domestic network (we are the number one or two carrier after Air France in most of the airports where we operate). We increased capacity in France by 6% in the year, against competitor growth on our markets of 5%, launching eight new routes in the year such as Toulouse to Seville and Paris Orly to Split. Italy easyJet has a 12% market share in Italy. At year end Italy had 29 based aircraft. We continue to target increasing market share in Italy, by reinforcing our existing strong positions and investing more in the higher value catchment areas. We are the biggest operator at Milan Malpensa with 22 touching aircraft, have recently opened a new base at Naples and will open a base in Venice early in 2016 (and we are already the number one airline at both). We are supporting this by redeploying aircraft and crew from Rome Fiumicino, which still remains an important part of our network with an expected two million passengers a year. During 2015 we increased capacity in Italy by 7% launching 23 new routes in the year, including Milan Malpensa to Munich, Milan Linate to Paris Charles de Gaulle and Milan Linate to Amsterdam. Switzerland easyJet is Switzerland’s second largest airline with a 23% total market share. At year end Switzerland had 23 based aircraft. easyJet is the number one operator at both Geneva and Basel airports, with the latter also part of the Zurich catchment area. We increased capacity by 9% in the twelve months to 30 September 2015, building and reinforcing our leading positions at both airports. As the leading airline brand in Geneva and Basel easyJet’s strategy is to continue to build customer preference in the market. Competitor capacity growth on our markets was also 9%. easyJet launched eleven new routes in the year such as Geneva to Menorca and Basel to London Luton. Germany easyJet has 4% market share in Germany. At the year end Germany had 12 based aircraft. Germany is a large and attractive market, although with a more regional, federal structure than other European countries. easyJet is focused on its two bases at Berlin Schoenefeld, where it is the number one airline, and Hamburg, which opened in 2014. We target continued growth in Germany, taking share from the incumbent operators. We have increased capacity by 15% during the year. Competitor growth on our markets was 6%. We launched sixteen new routes in the year such as Hamburg to Lanzarote and Hamburg to Paris Orly. Portugal/Spain easyJet has 13% market share in Portugal and 8% market share in Spain. At year end Portugal had six based aircraft. Portugal and Spain are principally an in-bound market for easyJet, with strong demand on key flows to the region from the rest of Europe. We increased capacity by 8% and 2% in Portugal and Spain respectively, reflecting in particular the investment in a new base in Oporto from where we launched six new routes to Luxembourg, Nantes, Stuttgart, Manchester, Bristol and London Luton airports. We also announced that a new base at Barcelona would be opening in February 2016. Competitor market growth on our markets was 10% in Portugal and 7% in Spain. Netherlands easyJet is the Netherlands’ second largest short-haul airline with a 9% market share. At year end the Netherlands had three based aircraft. The Netherlands is a significant opportunity for easyJet, where we currently carry four million passengers a year. In March 2015 we opened a new base at Schipol Airport, Amsterdam (where we are now the second biggest operator) and we are continuing to invest in growth of our market share. As a result we have increased capacity by 17% during the year against competitor growth on our markets of 9%. easyJet launched nine new routes in the year, such as Amsterdam to Nice. 11 Strategic reportGovernanceAccountswww.easyJet.comChief Executive’s review continued 2 DRIVE DEMAND, CONVERSION AND YIELDS Alongside the quality of its network, easyJet is able to drive profitable growth through its leading customer-focused proposition. In particular we are driving increasing levels of loyalty and attracting passengers through the quality and innovation of our digital platform. Leading customer offering easyJet’s strong relationship with its customers continues to develop, with passengers increasingly likely to travel with easyJet again after previously taking an easyJet flight. Increasing customer loyalty helps to create more sustainable long-term revenue. In the last year, 74% of our seats were booked by returning customers, which is a six percentage point increase from 2010. All easyJet markets have seen an increase in customer loyalty, with France showing the biggest increase of 28% since 2011. The strength of the relationship was best illustrated during the very busy summer trading period, with approximately 80% of passengers who flew with easyJet being returning customers. As part of the 20th Anniversary celebrations easyJet announced the launch of its new customer loyalty program. This aims to recognise and retain our high value and loyal customers with a scheme that makes travel with easyJet even easier. Very different to legacy frequent flyer programs, which are highly expensive and complex, we want to make the simple things easy for our customers. The programme offers a range of benefits such as free name changes, free booking changes and a low price promise, all reinforced by a dedicated customer support team. This is expected to be rolled out in early 2016. Our combination of using primary airports in large economic markets, alongside high frequencies and attractive flight timings, also makes easyJet a logical choice for business passengers. We are focused on providing a bespoke business offering through distribution platforms, Travel Management Companies and direct to small and medium sized enterprises. We signed up 100 corporate customers during the year. Despite a strong comparable benefit in 2014 due to the Air France strike, we nevertheless continued to increase the business yield premium during the year. Sales of business products performed well, with a 58% increase in the sale of flexible business fares when compared to 2014. Sales through Global Distribution Systems grew by 32% in the year as easyJet continued to leverage its relationships with the Travel Management Companies. Bookings from corporate customers direct also went up by 30%. easyJet continues to see opportunities to sell its business product across Europe and we have recently strengthened our corporate sales capability through a new market, customer and industry structure. 12 Innovation and digital leadership Our digital platform is a key point of differentiation with our competitors. We believe that we have significant advantages in the capability of our web platform, our Customer Relationship Management (“CRM”) data and our mobile offering. During the year we had over 500 million visits across all platforms, an 18% increase in the last two years, and we grew web conversion by 13% over the same period. Our CRM enables our customers to benefit from increasing levels of personalisation across multiple channels, with examples such as saved passport details, targeted marketing campaigns via email and text message and bespoke offers from our affiliate partners. The user experience has been further developed over the year, with greater ease of interaction on the website and mobile and optimised layouts and design. We have put significant focus on the mobile offering over the past two years, with an award-winning app that enables mobile hosting through the airport, disruption notification live with the ability to change flights, and saved personal data such as payment details. We have seen very positive take-up of mobile as the platform for seat sales, almost doubling as a percentage over the last 12 months to over 8%. The strength of this platform was recently demonstrated when our summer 2016 season tickets went on sale. On the day we were commanding 33% of all UK airline web traffic share. Across all channels we had 2.6 million visits, up 30% on the prior year, of which over 15% were on mobile. In the early moments we were selling 800 seats per minute, rising to a peak when we were selling out the equivalent of an A320 every seven seconds. We will be investing substantially in our digital capability over the next three years, as we continue to innovate and maintain our leadership position in the sector. Our initial focus will be on enhancing the digital customer interface, to be delivered by summer 2016, followed by the development of support systems that will lead to easyJet having the first fully-integrated e-commerce platform in the airline industry. In the longer term we are committing to the acceleration of our use of data science to improve efficiency, increase revenue and drive greater customer satisfaction. The digital programme will offer increasing amounts of personalisation, introducing a more relevant booking journey based on previous behaviour to drive higher footfall, higher conversion rates and higher attachment rates. It will also enable greater self-management capability through the entire journey chain, from booking to check-in, through the airport and in the event of disruption. We are subsequently building an e-commerce platform that will give us a competitive advantage for the long term. Its primary objective is to give us significantly better flexibility and capability than we currently have, specifically around our ability to offer customers bespoke, attractive options. Lastly, we have started to explore ways to innovate in other areas across the business. In June we showcased new technology such as engineering drones and prognostics software. Looking to the future, we are investing in research around Artificial Intelligence to exploit the large amounts of data generated by our operations. easyJet plc Annual report and accounts 20153 MAINTAIN COST ADVANTAGE 4 DISCIPLINED USE OF CAPITAL easyJet has a clear capital structure framework and a strategy which is intended to maximise shareholder returns. The Company maintains a strong balance sheet with low gearing, which gives us a strong competitive advantage through access to a lower cost of funding as well as operational flexibility. Our objective is always to optimise our return on capital employed through the allocation of aircraft and capacity across the network, regularly moving them to airports and routes with better opportunities. In line with this strategy, we took the decision in June to close our base at Rome Fiumicino and will redistribute those eight based aircraft to other bases in Italy, including the opening of a new base in Venice. These actions reiterate our focus on returns and will increase the return on capital employed of the Company as a whole, as we have done regularly in the past and will do so in the future. As we continue to add frequencies and commit to basing aircraft around the network in scale, we are able to maintain the very high fleet utilisation that sets us apart. In 2015 we maintained our asset utilisation across the network, at an average of 11 block hours per day (2014: 11 hours). Fleet We manage our fleet to provide flexibility in our planning arrangements, so that on the one hand we can maximise opportunities in a strong demand environment, whilst being able to manage our capacity as necessary. easyJet’s total fleet as at 30 September 2015 comprised 241 aircraft and increased by a net 15 from 30 September 2014. Over the next five years we will reduce cost by changing the fleet mix and ownership structure. We took delivery of 20 A320 aircraft in the 12 months to 30 September 2015, which provide a per seat cost saving of 7% to 8% over the A319, through up-gauging. Five A319 aircraft were retired and the average age of the fleet increased to 6.2 years (2014: 5.8 years). easyJet has a strong cost-focused culture, with a number of structural advantages in key areas that enable it to combine the offering of a primary airport network with good value fares. Every year easyJet delivers substantial cost savings against underlying cost inflation, whilst in the longer term we have a pipeline of opportunities that will further improve our structural competitiveness. In 2015 cost per seat decreased by 3.4%, primarily reflecting benefits from fuel and foreign currency. On a constant currency, ex-fuel basis cost per seat rose 3.6%. Part of this is the cost of doing business within our successful business model; part was due to one-off factors during the year. We have generated sustainable savings during the year of £46 million. easyJet’s structural advantages are an integral part of our business model, with established benefits in fleet, airports and handling, engineering, pensions and overheads: • We operate an exclusively Airbus A320-family fleet. This delivers operational flexibility as well as efficiencies in engineering and maintenance, crew, ownership and fuel. As the second-largest operator of Airbus aircraft in the world we also benefit from significant economies of scale on acquisition. Between 2016 and 2021 we will derive a major benefit from up-gauging of our fleet, from a majority 156-seat A319 composition to a fleet that is over 70% 186-seat A320s. This is expected to have a 13-14% cost per seat benefit, which translates into over £110 million of comparable savings. • With significant positions in our airports, we are able to drive economies of scale from long term deals with the airport owners and operators, as well as with ground handling agents at those airports. We are now in our second year of a seven year contract with Gatwick airport, as the largest operator at the airport, and likewise at London Luton airport, where we have signed a 10 year contract. In Ground Handling we signed an arrangement with GH Italia covering all of the nine airports where we operate in Italy. We expect to agree a number of new contracts in both areas in 2016 and 2017. • During 2015 we completed our new component support arrangement with AJW Group, consolidating previous arrangements and again leveraging our increasing scale. This has been successfully implemented in October 2016 and we expect to drive significant maintenance savings over the term of the contract. • easyJet is not encumbered with significant historic costs that legacy carriers have. Our crew are more productive. We maintain a lean and efficient head office and we do not have expensive pension arrangements for current and previous employees. We believe we can leverage this position to drive incrementally profitable growth in the medium term. We will relentlessly focus on delivering these initiatives in the next few years. Our experiences in 2015 have given us the impetus to increase our cost saving efforts. We plan to re-invigorate what has already been a hugely successful cost saving programme, leveraging our increasing scale and reviewing our cost management down to the lowest level. 13 Strategic reportGovernanceAccountswww.easyJet.comChief Executive’s review continued Fleet as at 30 September 2015: A319 A320 A320neo Owned 93 70 – 163 Operating leases 49 18 – 67 Finance leases 6 5 – 11 % of fleet 61% 39% Total 148 93 – 241 Future committed deliveries at 16 November 2015 – 56 130 186 Changes in year (5) 20 – 15 Unexercised purchase rights – – 100 100 Agreement for 36 additional aircraft Due to our continued robust trading, high demand for easyJet flights and the number of profitable opportunities we see in our markets, we are pleased to have secured an agreement with Airbus to take delivery of an additional 36 A320 aircraft between 2018 and 2021, all in the 186 seat configuration. These aircraft will offer increased flexibility in fleet planning, including the faster replacement of some of our A319 aircraft, lower overall unit costs and ensure easyJet can continue to grow past 2019 to support increasing total shareholder return. easyJet is exercising rights to 30 next generation A320 NEOs under the existing framework agreement signed in 2013(3). The additional six aircraft are current generation A320 added to that agreement. We have secured an additional 30 A320 NEO purchase rights to replace those we are exercising. Funding is available. easyJet’s balance sheet and cash generation is strong with gearing at 30 September at 14%, marginally below the Board’s target of 15% – 30%. 5 CULTURE, PEOPLE AND PLATFORM easyJet is passionate about its people and we believe that it is what sets us apart. In particular we believe that our customer- facing employees are the best in the industry and contribute significantly to the positive experience that our passengers enjoy, which in turn drives their loyalty and repeat business. It is our people who continue to deliver the strategy for the business and will drive future success. Internally we continue to focus on recruiting the right people, helping them to understand the Company’s values and their role in the business and then giving them the tools to develop a high-performance culture. Our people are truly exceptional. They are passionate and driven to achieving a winning strategy. They have responded to recent tragic events with energy, care for our customers and unbelievable stamina. We couldn’t achieve these results without this orange spirit. In line with the rest of the business we recruited during the year to help support our growth, adding over 290 pilots and 1,300 cabin crew, as well as 390 people within the management, administration, engineering and maintenance departments. Retention rates remain good with employee turnover of 6.6% (2014: 6.7%). DELIVERING SHAREHOLDER RETURNS Our high revenue growth and good cost control have driven strong profit growth and this year we have recorded record profit for the fifth consecutive year. Our cash generation is also strong. We generated £895 million in operating cash, before investing £532 million, principally in the acquisition of 20 aircraft. easyJet ended the year with net cash of £435 million and gearing of 14%, marginally below the bottom end of the Board’s target range. Return on capital employed increased to 22.2% from 20.5% last year, as the increase in profit more than made up for the increase in fleet. As we embark on a new phase of fleet acquisition we expect this to reduce slightly in the next few years, whilst remaining among the higher performers in the market. As we look forward, we expect that our ability to grow revenue and the renewed focus on cost will deliver strong earnings momentum and significant returns to shareholders. 14 easyJet plc Annual report and accounts 2015HEDGING POSITIONS easyJet operates under a clear set of treasury policies agreed by the Board. The aim of easyJet’s hedging policy is to reduce short term earnings volatility. Therefore, easyJet hedges forward, on a rolling basis, between 65% and 85% of the next 12 months anticipated fuel and currency requirements and between 45% and 65% of the following 12 months anticipated requirements. Details of current hedging arrangements are set out below: Percentage of anticipated requirement hedged Six months to 31 March 2016 Average rate Full year ending 30 September 2016 Average rate Full year ending 30 September 2017 Average rate Sensitivities • A $10 movement per metric tonne impacts the 2016 financial year fuel bill by $3.5 million. • A one cent movement in £/$ impacts the 2016 financial year profit before tax by £1.5 million. • A one cent movement in £/€ impacts the 2016 financial year profit before tax by £0.7 million. • A one cent movement in £/CHF impacts the 2016 financial year profit before tax by £0.4 million. OUTLOOK We remain confident in our ability to deliver growth and returns for shareholders as we continue to execute our strategy. For the year to 30 September 2016 we plan to increase capacity by c.7% and by c.8% in the first half of the year as we invest in profitable growth. We will continue to expand in our new bases of Hamburg, Amsterdam and Oporto as well as consolidating our strong market positions in the UK, Switzerland, France and Italy. Demand remains resilient and with forward bookings in line with last year, we view the future with confidence. Based on current market fuel prices we expect the unit fuel(4) bill to decline by between £140 million and £160 million during the year to 30 September 2016. As you would expect, passengers will continue to benefit from the lower fuel cost and therefore we expect a slight decline in revenue per seat at constant currency during the first half of the year. Fuel requirement 85% $852 /metric tonne 83% $830 /metric tonne 60% US Dollar requirement 89% $1.62 81% $1.63 61% Euro surplus 75% €1.20 80% €1.22 54% CHF surplus 69% CHF 1.46 67% CHF 1.46 51% $664 /metric tonne $1.55 €1.33 CHF 1.43 We expect a slight decline in total cost per seat at constant currency including fuel for the full year of approximately 1%, based on jet fuel prices within a range of $450 per metric tonne to $556 per metric tonne. Cost per seat excluding fuel and currency is expected to increase by approximately 2% for the full year. This will be weighted towards the first six months to 31 March 2016, primarily reflecting further increases in regulated airports costs and navigation charges, disruption costs and an expected cold winter. Exchange rate movements(5) are likely to have an adverse impact of approximately £15 million in the first half year compared to the six months to 31 March 2015 and £40 million for the 12 months to 30 September 2016 compared to the 12 months to 30 September 2015. Consequently market expectations are in line within the Board’s expectations for the full year. We continue to see significant longer term opportunities to grow revenue, profit and shareholder returns. We expect market demand to remain strong and easyJet’s unique model and strategy are well-positioned to capture significant value from favourable trends in both leisure and business markets. CAROLYN MCCALL OBE Chief Executive (3) The aircraft list prices based on the relevant price catalogue in January 2012, is US$76,260,569 for the current generation A320 aircraft and US$92,346,946 for the new generation A320 NEO aircraft (being the sum of the airframe list price, engine option list price and the price of certain assumed specification change notices). Therefore the total list price for the 36 aircraft is approximately US$3,227,971,794. (4) Unit fuel calculated as the difference between latest estimate of the 2016 financial year fuel costs less the 2015 financial year fuel cost per seat multiplied by 2016 financial year seat capacity. (5) US $ to £ sterling 1.522, euro to £ sterling 1.4106. Currency and fuel increases are shown net of hedging impact. 15 Strategic reportGovernanceAccountswww.easyJet.comKey performance indicators Measuring our performance SAFETY FIRST COMPOSITE RISK VALUE (CRV) 1.0 0.8 0.6 0.4 0.2 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Definition: All reported safety-related incidents are assessed and categorised with risk values assigned and aggregated to form a composite risk value index. Performance: Safety remains our number one priority, supported by a strong safety reporting culture. The small increases year-on-year reflect the Company’s promotion and ongoing commitment to an open safety reporting culture. See Risk on pages 24-29 for more information BUILD STRONG NO. 1 & 2 NETWORK POSITIONS MAINTAIN COST ADVANTAGE TOP 100 AIRPORTS WHERE WE ARE THE NO.1 OR NO.2 AIRLINE COST PER SEAT EXCLUDING FUEL (£) ON-TIME PERFORMANCE (%) 21 21 19 23 22 36.62 36.25 38.17 37.70 37.35 88 87 85 80 79 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Performance: Excluding Rome Fiumicino, where easyJet has taken a strategic decision to reallocate aircraft to more profitable and stronger markets within Italy, we have maintained the number of key airports where we have a number one or number two position. Definition: Revenue less profit before tax, plus fuel costs, divided by seats flown. Definition: Percentage of flights which arrive within 15 minutes of the scheduled arrival time. Performance: Cost per seat excluding fuel decreased by 0.9% to £37.35, however increased by 3.6% at constant currency due to anticipated increases in charges at regulated airports, increased disruption costs and costs associated with building a resilient operation ahead of new crew base openings. Performance: Increased disruption due to the French ATC strikes in April and the fires at Rome Fiumicino airport have contributed to the decrease in on-time performance to 80% (2014: 85%). See Chief Executives’ review on pages 9-15 for more information See Financial review on pages 18-22 for more information See Corporate Responsibility on pages 30 to 45 for more information 16 easyJet plc Annual report and accounts 2015DRIVE DEMAND, CONVERSION AND YIELDS ACROSS EUROPE CULTURE, PEOPLE AND PLATFORM REVENUE PER SEAT (£) OVERALL CUSTOMER SATISFACTION (%) EMPLOYEE ENGAGEMENT (USAY)(1) (%) 55.27 58.51 62.58 63.31 62.48 80 80 76 78 75 83 83 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2014 2015 Definition: Revenue divided by seats flown. Performance: Revenue per seat decreased by 1.3% to £62.48 (2014: £63.31), impacted by the weak Euro, with an increase of 1.5% at constant currency. Definition: Customer satisfaction index, based on results of a customer satisfaction survey which measures how satisfied the customer was with their most recent flight. Performance: Overall customer satisfaction was lower than prior year primarily due to increased disruption. Definition: Employee engagement index, based on results of an employee survey. Performance: The survey result was consistent with last year, and continues to outperform the Ipsos Mori airline norm.(2) See Financial review on pages 18-22 for more information See Corporate Responsibility on pages 30 to 45 for more information See Corporate Responsibility on pages 30 to 45 for more information DISCIPLINED USE OF CAPITAL GEARING (%) 28 29 ROCE (%) ORDINARY DIVIDEND (PENCE PER SHARE) 17 14 7 11.3 9.8 22.2 20.5 17.4 55.2 45.4 33.5 21.5 10.5 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Definition: Adjusted net debt divided by the sum of shareholders’ equity and adjusted net debt. Definition: Normalised operating profit after tax divided by average adjusted capital employed. Performance: Gearing decreased by three percentage points to 14%. Performance: ROCE increased to 22.2% (2014: 20.5%). Performance: The Board has recommended a final dividend of 55.2 pence per share (2014: 45.4 pence), an increase of 21.6%, which is in line with the stated dividend policy of a payout ratio of 40% profit after tax. See Financial review on pages 18-22 for more information See Financial review on pages 18-22 for more information See Financial review on pages 18-22 for more information (1) Surveys carried out prior to 2014 were conducted using a different methodology and the results are therefore not comparable. (2) Ipsos Mori is a market leading research company. 17 Strategic reportGovernanceAccountswww.easyJet.comFinancial review OUR FINANCIAL RESULTS FINANCIAL OVERVIEW Total revenue Costs excluding fuel Fuel Profit before tax Tax charge Profit after tax Operating profit* * Operating profit represents profit before interest and tax. £ million 4,686 (2,801) (1,199) 686 (138) 548 £ per seat 62.48 (37.35) (15.98) 9.15 (1.84) 7.31 2015 pence per ASK 5.59 (3.34) (1.43) 0.82 (0.17) 0.65 £ million 4,527 (2,695) (1,251) 581 (131) 450 £ per seat 63.31 (37.70) (17.49) 8.12 (1.83) 6.29 2014 pence per ASK 5.69 (3.39) (1.57) 0.73 (0.16) 0.57 688 9.18 0.82 581 8.12 0.73 In the 2015 financial year, easyJet flew 68.6 million passengers (2014: 64.8 million) and grew profit before tax by 18.1% to £686 million. Profit after tax was £548 million, an increase of 21.8% over last year. Basic earnings per share increased 21.5% to 139.1 pence. Fuel costs decreased by £52 million, and from £17.49 to £15.98 per seat, primarily driven by the significant reduction in market price. Profit before tax per seat increased 12.6% to £9.15 per seat (2014: £8.12). The tax charge for the year was £138 million. The effective tax rate for the year was 20.1% (2014: 22.5%), slightly lower than the standard UK rate of 20.5%, reflecting the impact of net prior year adjustments of £6 million. ANDREW FINDLAY, CHIEF FINANCIAL OFFICER Year-on-year seats flown grew by 4.9%. Total revenue per seat fell by 1.3% to £62.48. At constant currency, revenue per seat grew by 1.5% to £64.28. Excluding fuel, cost per seat decreased by 0.9% to £37.35, and increased by 3.6% at constant currency. This increase includes higher disruption costs following French ATC strikes in April and the impact of two fires at Rome Fiumicino airport. There were also additional costs due to increased airport charges, the early recruitment of crew in the winter to provide a resilient operation ahead of three crew base openings, and a one-off settlement of £8 million with Eurocontrol in the second half of the year. 18 easyJet plc Annual report and accounts 2015 Earnings per share and dividends per share Basic earnings per share Proposed ordinary dividend 2015 pence per share 139.1 55.2 2014 pence per share 114.5 45.4 Change 21.5% 21.6% Reflecting the increased profit after tax, basic earnings per share were 139.1 pence. In line with the stated dividend policy of a payout ratio of 40% of profit after tax, the Board is recommending an ordinary dividend of £219 million or 55.2 pence per share, which is subject to shareholder approval at the Company’s Annual General Meeting on 11 February 2016. This will be paid on 18 March 2016 to shareholders on the register at close of business on 26 February 2016. Return on capital employed (ROCE) and capital structure ROCE Gearing 2015 22.2% 14% 2014 20.5% 17% Change 1.7ppt (3ppt) ROCE for the year was 22.2%, an improvement of 1.7 percentage points on the prior year. The impact of hedging reserve movements on capital employed represents 0.8 percentage points of this increase. The acquisition of 20 aircraft during the year contributed to an overall 9.1% increase in capital employed which was more than compensated for by the increase in profit for the year. The combined effect of the profit for the year and the lower lease adjustment following the return of five leased aircraft, offset the impact of capital expenditure and the ordinary dividend payment, resulting in gearing of 14% (2014: 17%), which is marginally outside the target range of 15% to 30%. EXCHANGE RATES The strong performance of UK beach routes and the strengthening of sterling against Euro year-on-year resulted in an increase in the proportion of sales denominated in sterling. The relative weakness in the Euro was observable to a greater extent in cost than revenues due to the timing of the revenue and cost cash flows. Sterling Euro US dollar Other (principally Swiss franc) Average exchange rates Euro – revenue Euro – costs US dollar Swiss franc 2015 49% 40% 1% 10% Revenue 2014 47% 42% 1% 10% 2015 27% 32% 35% 6% Costs 2014 26% 33% 35% 6% 2015 €1.29 €1.35 $1.58 CHF 1.48 2014 €1.21 €1.22 $1.59 CHF 1.49 The net adverse impact on profit due to the year-on-year changes in exchange rates was mainly driven by the weaker average Euro rate: Favourable/(adverse) Revenue Fuel Costs excluding fuel Total Euro £ million (131) – 127 (4) Swiss franc £ million (1) – (3) (4) US dollar £ million 4 (6) 5 3 Other £ million (7) – – (7) Total £ million (135) (6) 129 (12) 19 Strategic reportGovernanceAccountswww.easyJet.com Financial review continued FINANCIAL PERFORMANCE Revenue Seat revenue Non-seat revenue Total revenue £ million 4,616 70 4,686 £ per seat 61.54 0.94 62.48 2015 pence per ASK 5.51 0.08 5.59 £ million 4,462 65 4,527 £ per seat 62.40 0.91 63.31 2014 pence per ASK 5.61 0.08 5.69 Revenue per seat decreased by 1.3% to £62.48 (2014: £63.31), again impacted by the weak euro, with an increase of 1.5% at constant currency. Load factor increased by 0.9 percentage points to 91.5%. Average sector length increased 0.5% year-on-year contributing to a reduction in revenue per ASK of 1.8% (increased by 1.0% at constant currency). Costs excluding fuel Operating costs Airports and ground handling Crew Navigation Maintenance Selling and marketing Other costs Ownership costs Aircraft dry leasing Depreciation Amortisation Net interest payable Net exchange (gains)/losses £ million £ per seat 2015 pence per ASK £ million £ per seat 2014 pence per ASK 1,122 505 313 229 102 276 2,547 114 125 13 8 (6) 254 14.96 6.73 4.17 3.06 1.36 3.70 33.98 1.51 1.66 0.17 0.12 (0.09) 3.37 1.34 0.60 0.38 0.27 0.12 0.33 3.04 0.14 0.15 0.02 – (0.01) 0.30 1,107 479 307 212 103 245 2,453 124 106 12 7 (7) 242 15.48 6.70 4.30 2.97 1.45 3.41 34.31 1.73 1.49 0.17 0.10 (0.10) 3.39 1.39 0.60 0.39 0.27 0.13 0.30 3.08 0.16 0.13 0.02 0.01 (0.01) 0.31 Total costs excluding fuel 2,801 37.35 3.34 2,695 37.70 3.39 Cost per seat excluding fuel decreased by 0.9% to £37.35 but increased by 3.6% per seat at constant currency. Airports and ground handling cost per seat decreased by 3.4% but increased by 2.4% at constant currency. This increase reflects higher charges at regulated airports, primarily in Italy, partially offset by savings from renegotiated airport contracts. Higher levels of de-icing costs in the first half of the year also contributed to the uplift. Crew cost per seat rose by 0.6% to £6.73, and by 3.8% at constant currency. This was driven by early recruitment of crew in the winter to provide a resilient operation ahead of three crew base openings together with the cost of regular pay increases. Navigation costs decreased by 2.8% to £4.17 per seat but were up by 5.1% at constant currency due to annual price increases and a one-off £8 million settlement with Eurocontrol. Maintenance cost per seat increased by 3.1% to £3.06, and by 3.8% at constant currency. The 2014 financial year benefited from a reduction in the cost of heavy maintenance following a revised engine contract, a significant proportion of this reduction was one-off in nature and did not recur this year. This impact was partially offset by reduced maintenance from the return of five leased aircraft during the year and some benefits of a reduced maintenance contract in the year. 20 easyJet plc Annual report and accounts 2015 Other costs per seat increased by 8.2% to £3.70 per seat, and by 9.6% at constant currency. There were increased disruption costs during the year due to the French ATC strikes in April and the two fires at Rome Fiumicino airport. Investment in the development of our digital customer proposition also contributed to the increased cost per seat. Aircraft dry leasing cost per seat fell by 12.6% to £1.51 and by 9.7% at constant currency due to the return of five leased aircraft during the year and the extension of 12 aircraft leases at lower monthly rentals. Depreciation costs have increased by 11.8% on a per seat basis. The increase is principally driven by the acquisition of 20 new A320 aircraft, which increased the average number of owned fleet by 9.7% from 150 in 2014 to 164 in 2015. Fuel Fuel £ million 1,199 £ per seat 15.98 2015 pence per ASK 1.43 £ million 1,251 £ per seat 17.49 2014 pence per ASK 1.57 Fuel cost per seat decreased by 8.6% and by 9.1% at constant currency. During the period the average market Jet fuel price fell by 36.4% to $619 per tonne from $973 per tonne in the previous year. The operation of easyJet’s fuel hedging policy meant that the average effective fuel price movement only saw a decrease of 10.7% to $872 per tonne from $977 per tonne in the previous year. Cost per seat including fuel decreased by 3.4% to £53.33 and decreased by 0.4% per seat at constant currency. NET CASH AND FINANCIAL POSITION Summary net cash reconciliation Operating profit Depreciation and amortisation Net working capital movement Net tax paid Net capital expenditure Purchase of own shares for employee share schemes Net decrease/(increase) in restricted cash Other (including the effect of exchange rates) Ordinary dividend paid Special dividend paid Net increase/(decrease) in net cash Net cash at beginning of year Net cash at end of year 2015 £ million 688 138 50 (98) (536) (92) 21 22 (180) – 13 422 435 2014 £ million 581 118 69 (96) (449) (57) (20) 26 (133) (175) (136) 558 422 Change £ million 107 20 (19) (2) (87) (35) 41 (4) (47) 175 149 (136) 13 Net cash at 30 September 2015 was £435 million (2014: £422 million) and comprised cash and money market deposits of £939 million (2014: £985 million) and borrowings of £504 million (2014: £563 million). After allowing for the impact of aircraft operating leases, adjusted net debt has decreased by £83 million to £363 million. As a result, gearing has decreased by three percentage points to 14% at 30 September 2015. Net capital expenditure includes the acquisition of 20 aircraft (2014: nine aircraft), the purchase of life-limited parts used in engine restoration and pre-delivery payments relating to aircraft purchases. easyJet made net corporation tax payments totalling £98 million during the 2015 financial year (2014: £96 million). Cash and money market deposits as at 30 September 2015 were £939 million, a reduction of £46 million from the end of the prior financial year. At 30 September 2015, £619 million (2014: £572 million) of cash and money market deposits represented unearned revenue in relation to flight seats sold but not yet flown. On 10 February 2015 easyJet signed a $500 million revolving credit facility with a minimum five-year term, and continues to have available funds in excess of its liquidity objective of £4 million per aircraft. 21 Strategic reportGovernanceAccountswww.easyJet.com Financial review continued Summary consolidated statement of financial position Goodwill Property, plant and equipment Derivative financial instruments Unearned revenue Net working capital Restricted cash Net cash Current and deferred taxation Other non-current assets and liabilities Opening shareholders’ equity Profit for the year Ordinary dividend paid Special dividend paid Movement in hedging reserve Other movements Change £ million – 335 (276) (47) 67 (20) 13 20 (15) 77 2015 £ million 365 2,877 (297) (619) (350) 12 435 (219) 45 2,249 2,172 548 (180) – (222) (69) 2,249 2014 £ million 365 2,542 (21) (572) (417) 32 422 (239) 60 2,172 2,017 450 (133) (175) 38 (25) 2,172 Net assets increased by £77 million, with the adverse movement on the hedging reserve and the payment of the ordinary dividend more than off set by the profit and cash generated in the period. The movement on the hedging reserve was due to the adverse mark-to- market movement on Jet fuel forward contracts offset to an extent by favourable movements on foreign currency forward contracts. The net book value of property, plant and equipment increased by £335 million, driven principally by the acquisition of 20 A320 family aircraft, and pre-delivery payments relating to other aircraft purchases. ANDREW FINDLAY Chief Financial Officer GOING CONCERN easyJet’s business activities, together with factors likely to affect its future development and performance, are described in the strategic report on pages 1 to 45. Principal risks and uncertainties are described on pages 24 to 29. Note 22 to the accounts sets out the Group’s objectives, policies and procedures for managing its capital and gives details of the risks related to financial instruments held by the Group. The Group holds cash and cash equivalents of £650 million and money market deposits of £289 million as at 30 September 2015. Total debt of £504 million is free from financial covenants, with £182 million due for repayment in the year to 30 September 2016. Net current liabilities at 30 September 2015 were £489 million but included unearned revenue (payments made by customers for flights scheduled post year end) of £619 million. The business is exposed to fluctuations in jet fuel prices and US dollar and euro exchange rates. The Group’s policy is to hedge between 65% and 85% of estimated exposures 12 months in advance, and 45% and 65% of estimated exposures from 13 up to 24 months in advance. The Group was compliant with this policy at the date of this Annual report and accounts. After making enquiries, the Directors have a reasonable expectation that the Company and the Group will be able to operate within the level of available facilities and cash and deposits for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts. VIABILITY STATEMENT The Directors have assessed easyJet’s viability over a three-year period to September 2018. This is based on three years of the strategic plan, which gives greater certainty over the forecasting assumptions used. In making their assessment, the Directors took account of easyJet’s current financial and operational positions and contracted capital expenditure. They also assessed the potential financial and operational impacts, in severe but plausible scenarios, of the principal risks and uncertainties set out on pages 24 to 29 and the likely degree of effectiveness of current and available mitigating actions. Based on this assessment, the Directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet all their liabilities as they fall due up to September 2018. In making this statement, the Directors have also made the following key assumptions: • funding for capital expenditure in the form of capital markets debt, bank debt or aircraft leases will be available in all plausible market conditions; • there will not be a prolonged grounding of a substantial portion of the fleet; and • in the event that the UK votes to leave the European Union, the terms of exit are such that easyJet would be able to continue to operate over broadly the same network as at present. 22 easyJet plc Annual report and accounts 2015 KEY STATISTICS Operating measures Seats flown (millions) Passengers (millions) Load factor Available seat kilometres (ASK) (millions) Revenue passenger kilometres (RPK) (millions) Average sector length (kilometres) Sectors Block hours Number of aircraft owned/leased at end of year Average number of aircraft owned/leased during year Number of aircraft operated at end of year Average number of aircraft operated during year Operated aircraft utilisation (hours per day) Owned aircraft utilisation (hours per day) Number of routes operated at end of year Number of airports served at end of year Financial measures Return on capital employed Gearing Profit before tax per seat (£) Profit before tax per ASK (pence) Revenue Revenue per seat (£) Revenue per seat at constant currency (£) Revenue per passenger (£) Revenue per passenger at constant currency (£) Revenue per ASK (pence) Revenue per ASK at constant currency (pence) Costs Per seat measures Total cost per seat (£) Total cost per seat excluding fuel (£) Total cost per seat excluding fuel at constant currency (£) Operating cost per seat (£) Operating cost per seat excluding fuel (£) Operating cost per seat excluding fuel at constant currency (£) Ownership cost per seat (£) Per ASK measures Total cost per ASK (pence) Total cost per ASK excluding fuel (pence) Total cost per ASK excluding fuel at constant currency (pence) Operating cost per ASK (pence) Operating cost per ASK excluding fuel (pence) Operating cost per ASK excluding fuel at constant currency (pence) Ownership cost per ASK (pence) 2015 75.0 68.6 91.5% 83,846 77,619 1,118 457,479 892,052 241 232.6 233 221.1 11.1 10.5 735 136 2014 71.5 64.8 90.6% 79,525 72,933 1,112 439,943 849,790 226 220.8 217 210.8 11.0 10.6 675 135 22.2% 14% 9.15 0.82 62.48 64.28 68.28 70.25 5.59 5.75 53.33 37.35 39.07 49.96 33.98 35.57 3.37 4.77 3.34 3.49 4.47 3.04 3.18 0.30 20.5% 17% 8.12 0.73 63.31 63.31 69.90 69.90 5.69 5.69 55.19 37.70 37.70 51.80 34.31 34.31 3.39 4.96 3.39 3.39 4.65 3.08 3.08 0.31 Increase/ (decrease) 4.9% 6.0% +0.9ppt 5.4% 6.4% 0.5% 4.0% 5.0% 6.6% 5.3% 7.4% 4.9% 0.5% (0.9%) 8.9% 0.7% +1.7ppt -3ppt 12.6% 12.0% (1.3%) 1.5% (2.3%) 0.5% (1.8%) 1.0% (3.4%) (0.9%) 3.6% (3.6%) (1.0%) 3.7% (0.4%) (3.9%) (1.5%) 3.1% (4.1%) (1.5%) 3.1% (1.0%) 23 Strategic reportGovernanceAccountswww.easyJet.com Risk Risk management framework The Group faces a number of risks which, if they arise, could affect its ability to achieve its strategic objectives. The Board is responsible for determining the nature of these risks and ensuring appropriate mitigating actions are in place to manage them effectively. Risk appetite The level of risk it is considered appropriate to accept in achieving easyJet's strategic objectives is reviewed and validated by the Board on an annual basis. The appropriateness of the mitigating actions is determined in accordance with the Board approved risk appetite for the relevant area. Risk management process The diagram below sets out easyJet's risk management process. This is co-ordinated by the risk team, which reports to the Chief Financial Officer. The key elements of the process are: • The risk management process begins with the identification of significant risks by each function. Risk identification workshops are run to identify matters which could materially impact on the functions or the wider business. These are attended by Executive Management Team members and senior managers. • Risks are assessed taking into account the potential impact and likelihood of the risks occurring and the key mitigations identified. The current level of risk is compared to the Board's risk appetite to determine whether further mitigations are required. Risks specific to the function's activities are managed within the function on an ongoing basis with regular follow-up by the risk team. • The most significant risks from each function (based on materiality, cross-functional impact and/or those which have common themes across the business) are reviewed by the Risk Evaluation Group, which consists of members of senior management from each function. This Group's role is to debate, agree and prioritise the principal business risks. • These risks, which form the basis for the principal risks and uncertainties detailed in this section, are challenged and validated by the Executive Management Team and the Board. • The principal business risks are monitored and managed throughout the year by the Executive Management Team and the Board with the risk team. Risk reports are provided to the Board on a quarterly basis as a minimum. • In addition to supporting the Board, the risk team supports the business in its management of risks relating to key projects, third parties, countries and bases. Turn to page: 56 for further details on Risk Management and Internal control Risk identification & assessment RISK MANAGEMENT PROCESS OPERATIONAL RISKS FINANCIAL RISKS REPUTATIONAL RISKS FEEDBACK FROM THE BOARD Challenge & ownership SPONSORSHIP AND RISK APPETITE ASSESSMENT SAFETY RISKS* RISK EVALUATION GROUP PRIORITISES AND FILTERS PRINCIPAL BUSINESS RISKS EXECUTIVE MANAGEMENT TEAM PLC BOARD PROJECT/ PROGRAMME RISKS FEEDBACK FROM THE BOARD COUNTRY/ BASE RISKS THIRD PARTY RISKS Risk identification & assessment * A separate management system monitors flight safety risks (easyJet's safety process is described in more detail on pages 31 to 32). 24 easyJet plc Annual report and accounts 2015Principal risks and uncertainties The risks and uncertainties described below are considered, at this point in time, to have the greatest effect on easyJet's strategic objectives. This list is not intended to be exhaustive. Whilst easyJet can monitor risks and prepare for adverse scenarios, the ability to affect the core drivers of many risks is not within the Group's control, for example adverse weather, pandemics, acts of terrorism, changes in government regulation and macroeconomic issues. Link to strategy: 1 2 3 Build strong number 1 and 2 network positions Drive demand, conversion and yields Maintain cost advantage 4 5 Disciplined use of capital Culture, People & Platform SAFETY FIRST Risk description Mitigation Major safety incident A major safety incident (such as a hull loss) could adversely affect easyJet's reputation and its operational and financial performance. The impact of such an incident would be heightened if easyJet failed to react promptly and deal with it effectively. Link to strategy: 1 2 3 4 5 Security threat or attack Failure to identify or prevent a major security- related threat or attack, or react immediately and effectively, could adversely affect easyJet's reputation and its operational and financial performance. Link to strategy: 1 2 3 4 5 easyJet's number one priority is the safety and security of its customers and people. A Safety Committee (a committee of the Board) provides oversight of the management of easyJet's safety processes and systems Turn to pages: 52-53 for further details A Safety Review Board (at Executive Management Team level) is responsible for directing overall safety policy and governance. Safety Action Groups from across the airline are responsible for the identification, evaluation and control of safety-related risks. easyJet operates a Safety Management System using a leading software system (SafetyNet). This is used to: • collect and analyse safety data (enabling potential areas of risk to be projected); and • enable learning from easyJet and industry events/incidents to be captured and embedded into future risk mitigations. A robust incident reporting process and 'Just Culture' are in place. Turn to page: 31 for further details easyJet has an emergency response process and performs regular crisis management exercises. Hull (all risks) and liabilities insurance (including spares) is held. easyJet has an industry-leading fatigue risk management system and is currently implementing the EASA Flight Time Limitations regulations. A Security Decision Making Group, comprising the Chairman, Chief Executive, appropriate members of the Executive Management Team and other senior management, determines whether easyJet should continue to operate in countries or areas affected by security-related incidents. The Director of Safety and Security and the Head of Security work with authorities and governments around easyJet's network to assess whether security measures are effective and in compliance with regulatory requirements. A significant amount of work is carried out with the aim of enhancing: • early identification of developing and emerging security risks; • the active management of security risks; • the methods for reducing the impact of any security-related incident; and • the Group's security culture and awareness. 25 Strategic reportGovernanceAccountswww.easyJet.comRisk continued OPERATIONAL EXCELLENCE Risk description Mitigation Significant network disruption A number of factors could lead to widespread disruption to easyJet's network, including forces of nature (extreme weather, volcanic ash, etc.), terrorism, epidemics/pandemics or the closure of a key airport. Significant disruption to the network could significantly adversely affect easyJet's reputation and its operational and financial performance. Link to strategy: 1 2 3 4 There are processes in place, and clear roles and responsibilities within teams across the business, to manage significant disruption. A business disruption team, which includes senior management from relevant business areas, determines and initiates required action. A business continuity programme is in place. Board policy is to maintain target liquidity at £4 million per aircraft, which is supported by a $500 million (five-year) revolving credit facility provided by a group of 12 relationship banks. This allows the Group to better manage the impact of downturns in business or temporary curtailment of activities. In addition, easyJet holds business disruption insurance. Critical IT system failure and continuity of services easyJet is dependent on a number of key IT systems and processes. A loss of critical systems or access to facilities, including the website, could lead to significant disruption and could have an adverse operational, reputational and financial impact. Link to strategy: 2 3 5 Delivery of projects supporting the business strategy The business is undertaking a number of key projects and programmes to deliver key elements of the strategy. If these projects and programmes fail to deliver the business benefits and cost savings planned, easyJet could fall short of its planned financial results. Link to strategy: 1 2 3 4 5 Third-party service providers easyJet has entered into agreements with third-party service providers for services covering a significant proportion of its operational and cost base. Failure to adequately manage third party performance could adversely affect easyJet's reputation and its operational and financial performance. Link to strategy: 3 5 Key systems are hosted across two data centres in two distinct locations, with failover arrangements between them, or within third-party provider locations, for which failover arrangements are contractually agreed with them. IT disaster recovery plans are in place and tested regularly to identify areas for improvement in resilience. An IT incident management team is in place to respond rapidly to any unforeseen incidents that may arise. If there is a need to relocate critical staff due to the loss of facilities, alternative sites are available at short notice. A Steering Group, consisting of the Executive Management Team and key senior management, provides challenge to project teams, monitors progress and ensures that decisions are made at the appropriate level. Key IT projects or programmes have additional oversight through the IT Governance and Oversight Committee (a committee of the Board). Turn to page: 59 for further details A portfolio management office is in place to oversee delivery of projects and programmes, and track budgets and realisation of benefits. A project management framework, which sets out the governance requirements, key processes and controls, is followed by all projects and programmes. easyJet has a centralised procurement team which aims to provide the Group with competitive supply options. Following the supplier selection process the contract is managed according to easyJet's supplier management framework, whose key principles cover defined ownership and accountability, a governance framework and effective communication. Alternative service providers are identified and assessed within the major markets in which easyJet operates. Robust transition plans are agreed in the event of switching suppliers to enable an acceptable level of service to be maintained. 26 easyJet plc Annual report and accounts 2015Link to strategy: 1 2 3 Build strong number 1 and 2 network positions Drive demand, conversion and yields Maintain cost advantage 4 5 Disciplined use of capital Culture, People & Platform OPERATIONAL EXCELLENCE CONTINUED Risk description Mitigation Industrial action easyJet, and the aviation industry in general, has a significant number of employees who are members of trade unions. Industrial action taken by easyJet employees, or by the employees of key third-party service providers, could impact on easyJet's ability to maintain its flight schedules. This could adversely affect easyJet's reputation and its operational and financial performance. As easyJet operates across Europe there are 18 unions and nine representative bodies across eight countries of which crew are members. easyJet seeks to maintain positive working relationships with all trade unions and other representative bodies. Each of the countries in which easyJet operates has localised employment terms and conditions. This mitigates the risk of large-scale internal industrial action occurring at the same time. Processes are in place to adapt to disruptions as a result of industrial action. Link to strategy: 2 3 5 Senior management succession easyJet's current and future success is reliant on having the right people with the right capabilities in key leadership positions. Failure to develop and grow the capabilities and behaviours required of senior management so that there are clear successors for all key business roles, could adversely affect easyJet's ability to deliver its strategic objectives. Link to strategy: 5 Single fleet risk easyJet is dependent on Airbus as its sole supplier for aircraft. There are significant cost and efficiency advantages of a single fleet, however, there are two main associated risks: • technical or mechanical issues that could ground the full fleet, or part of the fleet, which could cause negative perception; and • valuation risks which crystallise when aircraft exit the fleet. The main exposure at this time is with the ageing A319 fleet, where easyJet is reliant on the future demand for second- hand aircraft. Link to strategy: 3 4 easyJet's aim is to develop talent from within. There are several talent development programmes in place for individuals who have been identified for fast-tracking into more senior roles as vacancies arise. In addition, a management development programme is in place to develop people management and senior leadership capabilities. These programmes operate at various levels within the organisation. There is an annual succession planning process. The Board considers that the efficiencies achieved by operating a single fleet type outweigh the risks associated with easyJet's single fleet strategy. The Airbus A320 family (which includes the A319) is one of the two primary fleets used for short-haul travel. There are approximately 6,000 A320 family aircraft operating with a proven track record for reliability. easyJet operates a rigorous established aircraft maintenance programme. To mitigate the potential valuation risks, easyJet regularly reviews the second- hand market and has a number of different options when looking at fleet exit strategies. Leasing facilitates the exit of A319 aircraft from the fleet by transferring residual value risk, and also provides flexibility in managing the fleet size. 27 Strategic reportGovernanceAccountswww.easyJet.comRisk continued STRONG BALANCE SHEET Risk description Mitigation Financial risk easyJet is exposed to a variety of financial risks which could give rise to adverse pressure on the financial performance of the Company, e.g. costs, revenue. • Market risks – significant/sudden increases in jet fuel prices, currency fluctuations or interest rates which have not been adequately protected through hedging • Counterparty risk – non-performance of counterparties used for depositing surplus funds (e.g. money market funds, bank deposits) • Liquidity risk – misjudgement in the level of liquidity resulting in inability to meet contractual/contingent financial obligations or the inability to fund the business when needed. Link to strategy: 3 4 The Finance Committee (a committee of the Board) oversees the Group's treasury and funding policies and activities. Turn to page: 59 for further details This includes: • a treasury policy setting out Board approved strategies for foreign exchange and fuel hedging, along with liquidity, interest rate management, counterparties and cash deposit limits; and • reviewing and reporting on compliance with Board treasury policies. The policy is to hedge within a percentage band for a rolling 24-month period. Board policy is to maintain target liquidity at £4 million per aircraft, which is supported by a $500 million (five-year) revolving credit facility provided by a group of 12 relationship banks. This allows the Group to better manage the impact of downturns in business or temporary curtailment of activities. A strong balance sheet supports the business through fluctuations in economic conditions. REPUTATIONAL RISKS Risk description Mitigation Major shareholder and brand owner relationship easyJet has two major shareholders (easyGroup Holdings Limited and Polys Holding Limited) which, as a concert party, control 33.73% of its ordinary shares. Shareholder activism could adversely impact the reputation of easyJet and cause a distraction to management. easyJet does not own its Company name or branding, which is licensed from easyGroup Ltd. The licence includes certain minimum service levels that easyJet must meet in order to retain the right to use the name and brand. The easyJet brand could also be impacted through the actions of easyGroup or other easyGroup licensees. Link to strategy: 4 easyJet has an active shareholder engagement programme led by its investor relations team. As part of that programme easyJet engages with easyGroup Holdings Limited on a regular basis alongside its other major shareholders. In addition to engaging with easyGroup as part of the shareholder engagement programme, the Company has a relationship agreement with easyGroup and Polys Holdings in line with the controlling shareholder regime as set out in the Financial Conduct Authority's Listing Rules. Turn to page: 83 for further details Representatives from the Board and senior management take collective responsibility for addressing issues arising from any activist approach adopted by the major shareholder. The objective is to proactively address issues before they arise and anticipate and plan for potential future activism. The brand licence agreement with easyGroup Ltd provides for the regular meeting of senior representatives from both sides to actively manage brand- related issues as they arise. Such meetings occur on a quarterly basis and have proven effective. easyJet also monitors compliance with brand licence service levels and has a right to take steps to remedy any instance of non-compliance. 28 easyJet plc Annual report and accounts 2015Link to strategy: 1 2 3 Build strong number 1 and 2 network positions Drive demand, conversion and yields Maintain cost advantage 4 5 Disciplined use of capital Culture, People & Platform REPUTATIONAL RISKS CONTINUED Risk description Mitigation An Information Security Steering Group, chaired by the General Counsel, oversees any developments in data threats and controls and determines whether appropriate responses are being taken to them. There is a dedicated information security team to monitor and manage information security risk. The following controls are in place: • monitoring of secure systems against unauthorised access; • reviewing the security of internal systems and easyJet.com through quarterly vulnerability scanning; • periodic mandatory employee security training to maintain staff awareness; • considering information security risks within procurement processes and the introduction of new systems and IT services; • monitoring and control of scanning software for fraudulent customer activity by the revenue protection team; and • providing robust physical security at head office buildings. Given the nature of this risk the appropriateness of the controls is under continuous review. easyJet seeks to have a rapid response to any such activity that may impact easyJet's ability to grow the business. Competitor and consolidation activity is monitored, enabling key routes/positions to be readily defended. The Network Development Forum, a cross-functional panel of senior executives, approves new bases and the allocation of assets around the network. Fleet framework arrangements, together with the Group's leasing policy, provide easyJet with significant flexibility in respect of scaling the fleet according to business requirements. Strong cost control is a key behaviour across the Company, with initiatives to drive cost reduction and improve efficiency in targeted areas. The Regulatory Affairs Group co-ordinates easyJet's role in influencing future and existing policy and regulations which affect the airline industry. Country oversight Boards are established for easyJet's main markets, raising awareness of potential changes and impacts in the different countries. Industry bodies and legal advisers in-country are also used to understand and develop appropriate responses to new legislation. easyJet has an in-house legal team to monitor compliance with formal regulatory requirements. Cyber threat and information security easyJet receives most of its revenue through credit card transactions and operates as an e-commerce business. It faces both external cyber threats and internal risks to its data and systems. A security breach could negatively impact easyJet's reputation and have an adverse operational and financial impact. Link to strategy: 2 3 5 Competition and industry consolidation easyJet operates in competition with both flag carriers and other low-cost airlines. easyJet's key competitive advantages include its network, cost base, digital innovation and efficient and robust capital structure. Failure to retain these advantages or react quickly to competitor changes could have an adverse financial impact. Industry consolidation could also affect the competitive environment in a number of markets. This could cause a loss of market position and erosion of revenue. Link to strategy: 1 2 3 Legislative and regulatory risks easyJet is exposed to legislative and regulatory oversight across its network and all countries where it sells its product via a native language website. This will increase as easyJet grows geographically and the number of local language websites increases. Failure to comply with legislative and regulatory requirements (or interpretations thereof), such as local consumer laws, passenger compensation for certain long flight delays and cancellations, and environmental and airport regulations, in the jurisdictions in which easyJet operates could have an adverse reputational and financial impact. In the event the UK votes to leave the European Union, the terms of exit could have implications for easyJet to continue to operate the network it does currently. Link to strategy: 2 3 4 5 29 Strategic reportGovernanceAccountswww.easyJet.comCorporate responsibility How we run our business responsibly The nature of our business means that our carbon emissions will be our largest environmental impact for the foreseeable future. We continue to be an efficient airline, due to a modern fleet and high load factor. It is the right thing to continue to work to reduce our environmental impact, but it is also absolutely central to maintaining our cost advantage and wider business efficiency. In 2013 we set targets to reduce our carbon emissions per passenger kilometre by 5% by 2022 and we have already achieved a 3% reduction, so we have increased the target further to 8% by 2020. We also want to have strong, positive and effective relationships with our partners. We already have very good relationships with most of them. We have established a supplier relationship management framework, based on the easyJet values. This guides relationships and clearly sets out our partners' rights and responsibilities. We are working to reduce and manage waste from our operations. A new project is being led by one of our Luton-based pilots who has also recently completed an MBA in business sustainability. The project will focus on reducing the amount of waste from on-board our aircraft, by engaging with our customers, our crew and our supply chain. For the first time, this year we are including an independent report from Rt Hon the Lord Blunkett, Chair of the easyJet Special Assistance Advisory Group, in the annual report. This group has continued to provide valuable advice and challenge to easyJet on how we support people who need assistance when travelling. A visible sign of the progress this year is that every easyJet aircraft now has an on-board wheelchair. I am very pleased that this year we have passed the milestone of £5 million in fundraising for Unicef. This is down to our crews' on-board appeals and the generosity of our customers. In light of this success, and our excellent relationship with Unicef, we decided this year to continue the partnership for a further three years. The renewed partnership aims to raise at least a further £5 million and increase the work between easyJet and Unicef in all key European markets. Our customers and employees have told us that they value the Unicef partnership but they also want us to increase the contribution we make locally. We have recently expanded this work, initially in the Luton area around our head office, in partnership with a new organisation called Connecting Enterprising Women. They have partnered easyJet female managers with young women in education, to provide mentoring and careers advice. This complements easyJet's emphasis on mentoring within the business to support career and personal development. Over the next year we hope to develop this programme and look for other ways we can have a positive impact in the areas around some of our key bases. easyJet has made good progress, as seen by the varied initiatives. Our people are energised and motivated by these priorities and we all recognise we can continue to do a lot more. CAROLYN MCCALL OBE Chief Executive CAROLYN MCCALL OBE, CHIEF EXECUTIVE At easyJet we seek to be a responsible company and make a positive contribution to society. We want to do the right thing for our customers, our people, our partners, the communities in which we operate and the environment. This is very important to the continued success of the business. Everyone who has a relationship with easyJet expects the airline to act responsibly and continue to improve. Safety is always easyJet's highest priority and comes before any of our other responsibilities. We continue to maintain comprehensive processes and structures to monitor and manage safety-related risk throughout the Company. We remain passionate about making travel easy and affordable for our customers. Our Customer Charter has continued to be a guide for all our people. This year we have particularly focused on how we support customers when there is disruption to their journey. We have made improvements to our support at airports and in our communication to customers, including innovative use of digital technology such as the easyJet mobile app. Our culture is an essential part of our success. Bringing the values of safety, pioneering, one team, passion, integrity and simplicity alive every day is important to all our people. So it is essential that easyJet continues to attract, develop and retain the right people. It is our people who will help to meet our ambition of being Europe's preferred short-haul airline. We value diversity and believe it contributes to our continued success. One aspect of this is female talent in our business. easyJet already focuses on ensuring there is a pipeline of women coming up through the organisation. The easyJet women's network started four years ago and has now got great momentum, which comes from the women across our airline. It strengthens this pipeline of talent. As part of increasing the representation of women across the airline, we are now increasing our efforts to recruit female pilots. We recognise that the proportion of our pilots who are female is too low, though this is common in the airline industry. We want to encourage more women to join and stay in this interesting, highly-skilled and well-rewarded profession. We have set an initial target to double the proportion of female new entrant pilots over two years, as the first phase of a long-term strategy to increase the proportion of female pilots in the airline and bring more women into more senior ranks and management roles. 30 easyJet plc Annual report and accounts 2015SAFETY FIRST easyJet's highest priority is the safety of its passengers and people. Safety is a guiding principle and informs the decisions made by the Company. The airline continues to develop an open safety culture that promotes continuous improvements in safety performance. Comprehensive processes and structures are maintained to monitor and manage safety-related risk throughout the airline. The safety management structure is led from the top of the organisation. The Chief Executive of easyJet Airline Company Limited (EACL) and the Accountable Manager of easyJet Switzerland S.A. (EZS) are responsible for all aspects of safety delivery, including compliance obligations under the EACL Air Operator Certificate and the EZS Air Operator Certificate, respectively. The Company also has Nominated Persons responsible for safety in certain aspects of the airline's operations. The Chief Executive chairs the Company's Safety Review Board which meets monthly to assess reports from the Safety Action Groups across the airline. This review and assessment process delivers monthly reports to both the UK Civil Aviation Authority and the easyJet Board. To further strengthen the safety structure and allow more in-depth review of safety matters, the easyJet Board established the Safety Committee in 2013. Turn to page: 52 For further information on the Safety Committee No compromise on safety easyJet does not compromise on safety. The Company has established a leading-edge Safety Management System and Fatigue Risk Management System which are well established and incorporate rigorous reporting processes. Through these systems easyJet works to drive safety performance improvements and reduce risks to its people, passengers and suppliers. easyJet has long pioneered innovative solutions to improve safety and continues to seek better ways to support our people to improve safety performance. In particular the airline continues to focus on developing its understanding of human factors to support this. The airline's Fatigue Risk Management System provides analytical data to determine reliable methods of predicting fatigue and alertness in pilots. It was established over 10 years ago and is one of only two such systems approved for use by the UK Civil Aviation Authority (CAA). easyJet has collaborated with the US National Aeronautics and Space Administration on fatigue research and analysis and is now working with the CAA to develop fatigue management principles which will be a benchmark for the rest of the aviation industry. easyJet is now also able to use data from flights, following agreement from many pilot representative groups across Europe, to monitor flight behaviours and better understand any operational issues which should be considered in relation to this important area. i S t r a t e g c r e p o r t G o v e r n a n c e A c c o u n t s http://corporate.easyJet.com/corporate-responsibility for more detail on our CR performance OUR NEW DIRECTOR OF SAFETY AND SECURITY, GEOFF WANT This year easyJet appointed a new Director of Safety and Security. Geoff Want joined easyJet in October 2014, having previously been a non-executive aviation safety adviser to the Board since December 2012. Geoff reports directly to the Chief Executive and Chairman and has a remit to act independently outside of other operational or commercial considerations. Geoff is an aviation safety expert and previously held the role of Director of Safety, Security and Risk Management at British Airways during his over 30 year career at the airline. At British Airways he became a member of the airline's Executive Board, where he had responsibility for operational planning and delivery, whilst also developing the company's risk management system. He later became aviation safety adviser to Rio Tinto, the global mining company. Throughout his career Geoff has worked closely with aviation safety and regulatory bodies. The Company's strong focus on safety has helped it meet the new regulatory compliance requirements prescribed by the European Aviation Safety Agency (EASA). easyJet continues to work closely with EASA on the development of future safety regulations. This has included easyJet's Director of Safety and Security being a member of EASA's EU taskforce following the Germanwings incident. In advance of the recommendation of EASA and the CAA, easyJet implemented measures to ensure at least two crew are in the cockpit at all times during a flight. All easyJet pilots are licensed by their national regulator and as part of this are subject to extensive regular medical assessments. In addition, all easyJet's pilots are continually scrutinised and monitored from recruitment to training and operating to ensure they are fully fit to operate. easyJet takes all incidents of disruptive behaviour on-board very seriously. The Company does not tolerate abusive or threatening behaviour on-board and seeks prosecutions where appropriate. It has established an internal working group on this issue and is also an active participant in the British Air Transport Association group, which brings together airlines, airports, airport retailers and the police. This year easyJet has also joined the Flight Safety Foundation, an international non-profit organisation whose purpose is to provide impartial, independent, expert safety guidance and resources for the aviation and aerospace industries. 31 www.easyJet.com Corporate responsibility continued Safety reporting Under easyJet's Air Operator Certificates it is required to regularly report operating safety performance to the National Aviation Authorities (NAAs) and to EASA. Injuries that occur on-board easyJet aircraft are reported under NAA regulations. easyJet has updated its Operational Safety reporting system, SafetyNet, to ensure that RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) categories are accurately reflected and reviewed as part of the investigation process. easyJet continues to review and develop this process so that these categories are thoroughly investigated, reviewed and reported. Protecting customers and employees easyJet's security team works to reduce vulnerability to security- related risks. The team co-operates closely with government and regulatory agencies throughout the network, to ensure strict compliance with security regulations. Security risk assessments are conducted for each airport and country to which easyJet flies. The highest standards of vigilance are maintained regarding the current geopolitical situation within those countries to inform these assessments. easyJet implements measures to protect the Company from corporate and aviation security risks, ensuring internal governance of business-sensitive and personal data, vetting our people and asset protection. A RESPONSIBLE AND SUPPORTIVE EMPLOYER easyJet wants to be an employer that attracts and retains the best people, values and promotes diversity, and seeks to support and develop its employees. It is on the strength of its people that it will be able to meet the Company's ambition to be Europe's preferred short-haul airline. The airline has a three-part people strategy to help deliver this: AT THE GATE Making sure that the Company has the right people, in the right job, at the right time, equipped to succeed and supported by processes that work. ON BOARD Is about living the values, wanting to be part of the Company's success and knowing the part they play in delivering this. ABLE TO FLY Means promoting a high-performance culture where continuous improvement is expected, managed and rewarded so that all people achieve their potential and deliver success. Safety in the supply chain easyJet has established a new risk-based programme focused around appropriate safety standards throughout its supply chain, including for our ground handling agents. This has involved the promotion of improved communication and engagement on safety issues and the sharing and learning from best practice. At the gate – ensuring easyJet has the right people The significant growth of easyJet has meant it has been crucial to recruit high numbers of crew across Europe. Through a high-volume recruitment programme it has successfully maintained optimum employee levels and recruited over 290 pilots and over 1,300 cabin crew during the year. DEFIBRILLATORS ON-BOARD Sudden cardiac arrest is a leading cause of death in Europe and there are a significant number of cardiac arrests on aircraft each year. According to the British Heart Foundation, after a cardiac arrest, every minute without cardiopulmonary resuscitation and defibrillation reduces someone's chance of survival by 10%. All easyJet aircraft now have on-board defibrillators. These devices are simple to use and give crews and any medical professionals travelling as passengers another option if someone on-board is having severe heart problems. Instruction on how to use defibrillators is now part of easyJet crew training, in addition to the regular first aid training. In addition, the Company has recruited 390 people within the management and administration and engineering and maintenance teams to support the growth of the business. In line with retention and development goals, 35% of these were recruited internally. As at 30 September 2015 easyJet employed 10,388 (2014: 9,649) people across Europe. The Company's recruitment processes are supported by continued high retention rates. This year employee turnover was 6.6%, compared to 6.7% in the 2014 financial year. Within the different easyJet communities the turnover this year was: 11.3% for management and administration and engineering and maintenance, 2.7% for pilots and 7.2% for cabin crew. On board – living easyJet's values Once on board easyJet works with its people to help them understand easyJet's values and their role in the business and to help them achieve their full potential. The Company does this in a number of ways. Induction On joining the business all new recruits receive a detailed induction programme to introduce them to the business, its values and their role within easyJet. Induction includes mandatory e-learning in key areas including ethics, safeguarding our reputation, our customers (with a focus on the Customer Charter) and about customers who have reduced mobility. In addition, new recruits attend face-to-face induction sessions where they come together to learn about the business through interactive exercises. 32 easyJet plc Annual report and accounts 2015OUR VALUES Our values underpin everything we do. They reflect our ambition and shape who we are, both as a company and as people. We actively live and breathe them, every day. EMPLOYEE TURNOVER (%) 6.6% 9.7 SIMPLICITY ONE TEAM -0.1ppt from 2014 Survey highlights: 7.5 6.5 6.7 6.6 2011 2012 2013 2014 2015 SAFETY at the heart of everything we do INTEGRITY • Employee engagement index (an overall result, based on survey results) – 83% (2014: 83%) i S t r a t e g c r e p o r t G o v e r n a n c e A c c o u n t s PASSION PIONEERING Local employment and employee representatives easyJet employs people on local contracts in eight countries across Europe, complying with national laws. This has a higher cost than the approach taken by some other airlines who employ all their people on one contract, irrespective of where they may work. easyJet does this so that its roles are attractive locally and to reflect each country's employment practices. Many of our employees are represented by unions or other representative bodies. easyJet recognises the importance of actively engaging with these bodies across its operations to promote the success of the business. It works with eighteen unions and nine representative bodies across eight countries, undertaking dialogue and negotiation on a regular basis. easyJet actively supports employee representatives by allowing them released employee representatives for a total of 4,397 days at an estimated cost of £1.6 million. Engagement easyJet works to promote its values and maintain a positive culture within the business. To assess the impact of this activity on employee engagement easyJet conducts regular surveys. The survey results for 2015 show that easyJet outperforms the airline norm based on data from the survey provider Ipsos Mori, which aggregates employee survey data from its many airline clients to provide industry averages. • The extent to which employees understand and support what easyJet is trying to achieve as an organisation – 87% (2014: 86%) • The extent to which employees enjoy what they do and make a positive contribution to the organisation – 80% (2014: 80%) • The extent to which the organisation is a good place to work and that employees want to continue being part of that – 84% (2014: 83%) Following the survey easyJet has identified two main focus areas for improvement. It will respond to employee feedback on rosters and develop a plan to improve this process. easyJet will also consider how it engages with its employees at London Gatwick, the airline's largest base. This is particularly important as the engagement of easyJet's people and operational performance at London Gatwick have a significant impact on the airline's network as a whole. easyJet's people continue to show a high level of commitment to working at easyJet, demonstrated by high employee attendance, which was 96.2% this year. Able to fly – developing a high-performance culture Learning and development Supporting people to develop to their full potential and ensuring they have the right skills for their role is an essential part of maintaining a high-performance culture. easyJet provides significant new entrant and ongoing training for its pilots and cabin crew. To meet the airline's future training needs it has this year opened a new training centre at London Gatwick Airport, which will be used by crew from across the easyJet network. The airline has an established pilot cadet programme, in partnership with CTC Aviation and CAE Oxford Aviation Academy, to train people for their first full-time flying role. This year 223 cadets have completed their training with these providers and are now flying with easyJet. In addition to role-specific training, easyJet also offers learning and development opportunities to all of its people. This year it offered 115 face-to-face training sessions, which had over 1,200 participants, as well as 100 e-learning options. 33 www.easyJet.com Corporate responsibility continued easyJet has an apprenticeship programme within its engineering team, with currently 14 apprentices in the airline. The apprentices receive 8 months' classroom training, followed by 16 months with easyJet in a mix of aircraft maintenance and office-based roles. On completion of the programme the apprentices receive an NVQ Level 3 in aeronautical engineering and an 'A licence' to carry out standard maintenance tasks on aircraft. easyJet's graduate programme currently has 38 participants from across Europe. The graduates spend two years in different parts of the airline to develop their skills and increase their knowledge. easyJet also uses mentoring as a way to develop people, with benefits for both the mentee and mentor. All easyJet pilots are mentored by a more senior colleague and mentoring also takes place within the Company's management and administration community. One team value easyJet holds an annual 'Spirit Awards' event which celebrates the work of employees who live the easyJet values in their behaviour. easyJet managers decide which employees will get a ticket to the celebration event, which is attended by over 500 people. easyJet bases and its head office also have culture teams in which employees volunteer to arrange activities such as team social events. easyJet continues to support its managers through the Company's people management development programme, which aims to provide people managers with the skills and knowledge they need to effectively manage their direct reports. This programme is accredited by the University of Bedfordshire and counts towards ongoing study for an MBA. A total of 247 managers have now completed this course, including 72 this year. Connected crew Connected crew is a programme to engage pilots more closely with the business by improving communication and offering further learning and development opportunities. Pilot focus groups are carried out to give pilots the opportunity to ask questions and provide feedback to the management team face-to-face. Since the programme began in 2013 sessions have been held at London Gatwick, Milan, Paris Charles de Gaulle, Bristol and Manchester and attended by over 980 pilots. Command leadership training has been enhanced, so that it covers leadership and commercial awareness for new and existing captains. Since the programme began in 2013 over 1,200 captains have received the training. A culture of wellbeing The physical and psychological health of the Company's people is important for its continued success and growth. easyJet's overall aim is to keep its people happy, healthy and in work. By analysing management information that comes from its specialist providers the airline has been seeking to improve existing services and provide targeted help and support for employees. Findings indicate that although it is necessary to continue to support and promote good physical health, there is a need to provide additional focus on people's psychological health. Current initiatives in this area include developing a peer support network, as well as improved training on mental health for all of its people. easyJet is working with its new occupational health and employee assistance provider to further develop the support it offers to its employees. easyJet staff can now complete a health risk assessment, which gives a personalised health report and suggestions for positive lifestyle changes. There are also podcasts, factsheets and 'ask the expert' forums for our people to access information on a wide range of topics covering mental health, physical health and life skills such as parenting, relationships and debt management. Recognition and reward easyJet's approach to reward is critical to its ability to attract and retain people. The Company offers a competitive reward package designed to deliver a performance culture, with the emphasis on cash and variable pay rather than fixed benefits. The reward package includes an annual performance-driven bonus (based on personal and Group performance) and share awards (based on the financial performance of the Group). easyJet is committed to being a Living Wage employer. All direct employees of easyJet in the UK are already paid above the 'UK Living Wage', established by the Living Wage Foundation, which is currently £7.85 per hour and is above the UK National Minimum Wage. easyJet is working with the Living Wage Foundation to discuss considerations for the airline sector, such as variable pay for pilots and cabin crew, as well as the potential to extend the Living Wage to employees of airline suppliers. Employee benefits All easyJet employees, with a minimum amount of service, have the opportunity to become shareholders in the Company. At 30 September 2015 they held interests in 12.6 million shares between them worth £224 million. All employees can join easyJet's Save As You Earn scheme, which allows employees to save money from their salary with the option to purchase shares. All UK employees can take part in the Buy As You Earn scheme, in which employees can buy shares from their salary each month and easyJet buys matching shares. The UK schemes are approved by Her Majesty's Revenue & Customs. easyJet also awards Performance (Free) Shares to employees. easyJet employees may, subject to their holdings and the share price performance, be able to realise gains in share value. For example, 1.5 million Performance (Free) Shares vested during the year and the Save As You Earn scheme, which matured during 2015, had an exercise price of £4.18. The share price at 30 September 2015 was £17.77. easyJet also offers a small number of associated airline benefits in line with the Company's cost-focused approach. These include insurances and access to travel on easyJet services at cost price. easyJet contributes towards a group personal pension plan in the UK and, where negotiated, to pension arrangements for employees in Germany and Portugal. easyJet aims to provide flexible working arrangements, part-time working and job sharing that fit its business model and the personal circumstances of its people. As at 30 September 2015 there were 1,382 easyJet employees who worked part-time (working fewer than 35 hours per week), making up over 13% of the employee population. 34 easyJet plc Annual report and accounts 2015Equality and diversity easyJet is an equal opportunities employer and the Company always treats its employees and applicants fairly regardless of their age, gender, sexuality, full or part-time status, disability and marital status. easyJet values diversity and inclusivity and believes this contributes to the continued success of the Company, by attracting and retaining a workforce which reflects the airline's customer base and can engage with passengers as individuals. easyJet employs people of 50 different nationalities. These people are predominantly from countries in which easyJet operates, which provides valuable insight about different markets. As at 30 September 2015, the chart shows the 12 nationalities where easyJet has more than 50 employees. There are a further 38 nationalities in the easyJet employee community which are grouped together. easyJet employs people in some countries where it is not legal to store employee nationality information, so these employees are not included in this data. easyJet holds records for 670 employees where their nationality is not recorded. NUMBER OF EMPLOYEES BY NATIONALITY 14. 13. 12. 11. 10. 9. 8. 7. 6. 5. 4. 3. 2. 1. British: 5,174 2. French: 1,181 3. Italian: 932 4. Spanish: 615 5. German: 298 6. Dutch: 277 7. Portuguese: 267 8. Swiss: 233 9. Polish: 130 10. Irish: 107 11. Belgian: 99 12. Danish: 67 13. Other nationalities: 338 14. Nationality data not held: 670 Gender equality easyJet works hard to create an environment where women have the opportunity to build careers in all communities and at all management levels of the organisation, by ensuring there is a pipeline of women coming up through the organisation. The Company believes that a significant issue for women in business is the lack of female executives at senior management level. Currently too many women are leaving work and the business community is losing a lot of talent before enough women get to executive positions. 1. Middle managers will provide the pipeline for future senior managers and increasing the number of women in this group is an important part of our strategy to grow the number of women in our Senior Management Team. FEMALE REPRESENTATION Board of Directors 8 2 Executive Management Team 6 5 Senior Management Team (including the Executive Management Team) 50 15 All easyJet employees 5,671 4,717 Male Female 20% 45% 23% 45% easyJet is a signatory to the “think, act, report” campaign which promotes equal opportunities for women in the workplace. The campaign provides a simple step-by-step framework to help companies think about gender equality in their workforces, particularly in relation to recruitment, retention, promotion and pay. The Company has two female Directors on its Board: the Chief Executive and the Chairs of the Audit and Finance Committees. The Board continues to have a 20% female make-up. As shown on page 50, 45% (5 of 11) of easyJet's Executive Management Team are women, up from 4 of 11 in 2014. • Senior Management Team – As at 30 September 2015, 15 people out of 65 total were female (23%). This is a year-on-year increase of one percentage point. • Middle management – As at 30 September 2015, this group was 33.3% female. As at 30 September 2015, the overall easyJet workforce was 45% female. (2014: 46%). 35 Strategic reportGovernanceAccountswww.easyJet.comCorporate responsibility continued WOMEN'S NETWORK easyJet's Women's Network started four years ago and this year it has been re-launched with a range of new activities. The group has a mission to empower and inspire women across the airline. A large event was held with the Chief Executive and members of the airline's Executive Management Team. The group has also heard from a range of external speakers and female leaders within the airline. Gender pay easyJet welcomes the UK's Government's commitment to address the gender pay gap. The Company agrees that greater transparency would encourage organisations to give more consideration to gender pay and help to close the gender pay gap. However, to be meaningful the pay gap comparisons need to be made by type of role. Otherwise the statistics, which should be a useful guide for companies and employees, risk becoming distorted and losing their value. Disability easyJet treats applicants with disabilities equally and supports current employees who become disabled. This includes offering flexibility and making reasonable adjustments to the workplace to ensure they can achieve their full potential. However, for easyJet's two largest communities, pilots and cabin crew, there are a range of regulatory requirements on health and physical ability which all applicants and current employees must comply with. As an illustration, female pay as a percentage of male pay at easyJet – irrespective of the type of role or any other consideration – is 38.6%. This is based on full-time equivalent basic salary of active UK employees. This is influenced by the salaries and gender make up of easyJet's two largest communities, its pilots and cabin crew. Pilots are predominantly male and their salaries are higher than for cabin crew, the majority of who are female. However, easyJet salaries for equivalent roles are broadly equal across the genders, reflecting the Company's commitment to gender equality. Salaries for pilots and cabin crew are collectively agreed, meaning for example that a female captain's basic salary will be 100% that of a male captain and a female cabin crew member's basic salary will be 100% that of a male cabin crew member. Within easyJet's management and administration community female pay as a percentage of male pay is 97% when comparing equivalent roles. People reporting easyJet is currently carrying out a project to improve its employee data management system. The Company does not hold sufficient data to report on other aspects of the diversity of its workforce, such as ethnicity, sexuality, gender identity or disability. In the meantime, easyJet is working with its employees and their representative groups to carry out voluntary surveys on diversity to better understand the make-up of its workforce and how the Company can further support its people, particularly those who may be part of minority groups. To assist this work, easyJet has recently begun working with OUTStanding, an organisation which promotes equality and inclusion for people of all sexualities in the workplace. 36 easyJet plc Annual report and accounts 2015EASYJET'S COMMITMENT ON HUMAN RIGHTS easyJet has a responsibility to conduct business in an ethical and transparent way. The Company has in place policies to support recognised human rights principles. These include policies on non- discrimination, health and safety, anti-bribery and environmental issues. The Company also maintains a zero tolerance approach to bribery and corruption. easyJet seeks to comply with all relevant laws in the countries in which it operates, and co-operates with the efforts of national law enforcement agencies and border agencies to combat human rights abuses and crimes such as human trafficking. It adheres to a set of business principles including a commitment to internationally proclaimed human rights standards. These standards apply for the individuals working within the organisation and its customers. The Company's policies seek to respect and maintain the human rights standards defined in the International Bill of Human Rights. The Company observes the principles set out by the International Labour Organisation Declaration on Fundamental Principles and Rights at Work (the 'ILO Declaration'). It accepts its corporate responsibility to respect human rights, as set out in the United Nations Guiding Principles on Business and Human Rights (the 'UN Guiding Principles'). Employees: easyJet conducts its employment practices in an ethical and socially responsible manner. It respects the human rights of its employees as established in the four principles of the ILO Declaration: • Freedom of association and the effective recognition of the right to collective bargaining: easyJet recognises and respects its employees' right to join associations and choose representative organisations for the purpose of engaging in collective bargaining in a manner consistent with applicable laws, rules and regulations. • Elimination of all forms of forced or compulsory labour: easyJet does not utilise forced or compulsory labour. It recruits its employees and provides working conditions, including payment of wages and benefits, which comply with applicable laws and regulations. • Effective abolition of child labour: all easyJet employees are above the legal employment age in the country of their employment. • Elimination of discrimination in respect of employment and occupation: easyJet has committed human resources policies including non-discrimination and health and safety policies. Customers: easyJet is committed to making travel easy and affordable for all of its customers. It upholds the equal treatment of all passengers regardless of their personal characteristics or social status. This commitment is supported by the advice of stakeholders within easyJet and the continued involvement of the easyJet Special Assistance Advisory Group (ESAAG) in policy and product development. Suppliers and third parties: easyJet will never knowingly infringe the human rights of others. It seeks to prevent or mitigate any adverse human rights impact directly linked to its business relationships through obtaining appropriate contractual commitments. It expects third parties who deal on its behalf to observe the principles of the International Bill of Human Rights, the ILO Declaration and the UN Guiding Principles. Bribery and corruption easyJet has a Company-wide anti-bribery and corruption policy which is strictly enforced. There is also a gifts and hospitality policy and online register to record all gifts and hospitality that are accepted by employees. It is compulsory for all management and administration employees to complete anti-bribery and ethics training and pass an online test. As at 30 September 2015 the test has been successfully completed by 100% of all relevant employees and contractors. FEMALE PILOTS easyJet recognises that the proportion of its pilots who are female is too low, though this is common in the airline industry. The Company wants to encourage more women to join and stay in this interesting, highly-skilled and well- rewarded profession. easyJet has recently established a new initiative to increase the proportion of new entrant easyJet pilots who are female. This is part of a new strategy to encourage the development of female pilots at all ranks and positions and which will widen the pipeline of women who enter easyJet's pilot community. Currently 5% of the over 2,600 pilots employed by easyJet are female and women make up 5% of easyJet's new entrant pilots. The airline plans to more than double the proportion of female new entrants to 12% over the next two years. easyJet will highlight the opportunities of pilot careers to female audiences such as school groups and other youth organisations, through presentations by easyJet pilots and managers, building on the work easyJet already does in mentoring young women. easyJet will also work in partnership with organisations which promote female take-up of STEM (science, technology, engineering and maths) subjects. easyJet will work with its pilot training providers to attract more women to apply for the cadet programme and offer 10 places for women each year on a pilot training programme with the training loan of around £100,000 underwritten by easyJet. In addition to the current mentoring for all pilots, easyJet will introduce enhanced mentoring for female pilots. Female captains will be given further development support so they can take on leadership roles such as training and base management roles. easyJet will also introduce training loan underwriting for A320 type ratings for female pilots entering from other airlines. 37 Strategic reportGovernanceAccountswww.easyJet.comCorporate responsibility continued CHARITY AND COMMUNITY easyJet remains strongly committed to engaging with the local communities in which it operates and harnessing the fundraising powers of its employees and significant customer base. The airline's fundraising activities are directed through its 'Change for Good' partnership with Unicef, the world's leading organisation focusing on children and their rights. Unicef – Our pan-European charity partner The 'Change for Good' partnership offers easyJet customers the opportunity to support some of the world's most vulnerable children by donating their spare change and leftover foreign currency whilst on board. This year the partnership added a third standard collection period in spring 2015, in addition to the existing summer and winter periods. Thanks to the generosity of its passengers and efforts of its crew, easyJet's partnership with Unicef this year reached the significant milestone of raising £5 million since it was established in 2012 and the overall total has now exceeded £6 million. The funds have primarily supported Unicef's vaccination work to keep children safe from deadly diseases, with a recent focus on supporting the global eradication of polio. The partnership has also supported Unicef's urgent appeals for children in danger from emergencies. To build on this success, easyJet and Unicef have agreed to continue the partnership for a further three years, with the aim of raising a further £5 million. This decision was the subject of a structured review process which also considered the option to move to another charity partner. The decision was made to renew the Unicef partnership for a further three years, reflecting the strong, successful existing partnership and Unicef's international recognition across all easyJet markets. The two organisations will work together to further increase the fundraising for Unicef, the engagement of easyJet's employees, and the profile of the charity partnership across Europe. “ Our partnership with easyJet has already achieved so much in the past three years, helping to vaccinate 5.3 million mothers and babies against deadly diseases, helping to keep 2 million children safe from polio and now purchasing approximately 4 million doses of polio vaccines to protect even more children. easyJet and their passengers have also provided vital support for Unicef's emergency work reaching children and families affected by the crisis in Syria and the surrounding region, Typhoon Haiyan in the Philippines, the Ebola crisis, and the Nepal earthquakes earlier this year. We're incredibly proud to have renewed our partnership with easyJet for another three years, and remain hugely grateful to easyJet and their passengers who are together making a real and tangible difference to the lives of millions of children around the world.” – David Bull, Unicef UK Executive Director 38 This year the partnership raised over £1.2 million through the regular on-board collections and a further £1.2 million through emergency appeals. The total funds raised through the partnership, including corporate donations and other fundraising activities, were £2.5 million this year. In addition to fundraising for Unicef, easyJet has also helped to raise awareness of the charity and its work for children. Examples include an easyJet aircraft that has a special 'Change for Good' Unicef livery, featuring Unicef in the inflight magazine 'Traveller', and making announcements about Unicef's work on-board flights during collection periods. easyJet's Chief Executive, Carolyn McCall, is a member of the Advisory Board for Unicef UK's Children in Danger campaign that aims to raise funds and awareness for the millions of children in danger from violence, war, disaster, disease and hunger. easyJet people see Unicef's work In March 2015 five easyJet people visited the Gambia to witness first-hand how Unicef is helping to keep children safe from polio. easyJet cabin crew member James Baron took part in the trip and said: “ This experience brought home to me how important partnerships like Unicef and easyJet's are. The funds raised by easyJet crew continue to help support efforts to eradicate polio from the world by 2019. No mean feat, but one that is within reaching distance, if the funding continues. easyJet and Unicef's Change for Good partnership is crucial to enable this to happen. I am proud to be a part of the on-board crew working to raise these funds; we must realise our goal of global eradication of polio and protect every child in danger.” ©Unicef/mcconnell/thegambia James Baron, easyJet cabin crew member Emergency appeals with Unicef This year easyJet and Unicef worked quickly and effectively together to launch three special collections in response to international emergencies. easyJet also made a corporate donation to start each appeal, totalling £40,000 over the three appeals. • Ebola, November/December 2014 – The two-week on-board collection raised over £200,000, including aid match funding for Unicef from the UK Government. This helped Unicef's overall response which provided psychological care and support for more than 52,000 children, supplied over 500,000 ebola protection suits, and distributed hygiene kits for almost four million schoolchildren. • Nepal earthquake, April/May 2015 – The four-week on-board collection, established within 48 hours of the earthquake, raised over £660,000. This helped Unicef's overall response which supplied more than 650,000 people with clean, safe water, delivered school supplies for over 200,000 children, and provided psychological care for more than 85,000 children and parents. easyJet plc Annual report and accounts 2015• Refugee and migrant crisis, September 2015 – The two-week on-board collection raised over £395,000. This helped Unicef's work with children affected by the crisis in Syria and neighbouring countries. Donations will provide life-saving supplies such as clean water and medicine, after an estimated more than two million Syrian children have been forced to abandon their homes. Charity Committee easyJet has a Charity Committee made up of airline employees which provides support, funded by the Company, to charitable activities by the Company's employees or to charities which are important to staff. These tend to be smaller charities in the areas where easyJet's employees live. This year the Committee has made 138 awards of flight vouchers or financial donations, each to the value of £250 or €300. These donations, reflecting the priorities of easyJet's staff, have most often been made to health charities, in particular cancer charities, and organisations which support children. Supporting local communities easyJet wants to make a positive contribution in the communities in which it operates. This is particularly important to the Company's employees who also live in these areas. easyJet already has strong links around its head office in Luton and it is also identifying partner organisations which could help easyJet to make a larger contribution in specific local areas, starting with Connecting Enterprising Women in the Luton area. The Luton community around easyJet's head office easyJet's links are particularly strong in the Luton area, where a large number of employees are based. The airline's first flight 20 years ago was from Luton Airport and easyJet continues to proudly call Luton its home. easyJet is a long-term supporter of Luton Town Football Club and in the 2014/15 football season easyJet was the main shirt sponsor of the team. The Company has since refocused its work with Luton Town by providing funding for the team's children's sport project, which also helps the club to access additional match funding from the national football associations. The Luton Town 'easyJet Free School Visit' project offers every primary school in Luton and Bedfordshire a free physical education session with the club. Additionally, with easyJet's support the club has recently extended this to offer female coaching sessions at every high school and further education college in Bedfordshire. easyJet has also continued to be a patron of Love Luton, an organisation which seeks to promote and improve the town. Connecting Enterprising Women easyJet has established a new community partnership with Connecting Enterprising Women, to support the Company's work to promote and encourage opportunities for women. The partnership, currently focused on Luton and the surrounding area, matches female professionals with young women to provide mentoring support and career guidance. Initially 10 young women at four local schools have been matched with easyJet female managers. They meet to discuss education, personal development and careers. THE GLOBAL WORK TO END POLIO In 1988 polio was endemic in 125 countries but today it remains in just two countries – Afghanistan and Pakistan. easyJet is proud to be a part of the global fight to eradicate polio forever. In September 2015 it was announced that polio is no longer endemic in Nigeria. If global immunisation efforts continue, Unicef believe there is a real chance that polio could be eradicated by 2019. Most recently, funds raised through the easyJet on-board collections have been allocated to purchase approximately four million doses of polio vaccines for a major polio campaign in Afghanistan. ©Unicef/mcconnell/thegambia AEROBILITY FLIGHT Aerobility, which offers disabled people the opportunity to fly small aircraft and participate in aviation activities, is a charity which has resonance within easyJet's pilot community, and they have supported the charity for a number of years. This year easyJet operated a flight to view the Northern Lights, to raise funds for the charity. The flight, which was provided without charge by easyJet, featured on-board live music and a commentary from entertainer Jon Culshaw, scientist Dr Helen Czerski and Neil Parker, formerly of the Royal Greenwich Observatory. All passengers on the flight were able to view the Aurora Borealis and the flight raised £18,500 to support Aerobility's work. 39 Strategic reportGovernanceAccountswww.easyJet.com• easyJet's pilots have implemented measures to save fuel whilst still operating the aircraft safely and effectively, such as one engine taxiing, delayed engine starts, continuous descent approaches and minimum use of the auxiliary power unit when on the ground. • easyJet's cockpits became paperless in May 2014 and its entire fleet is now fitted with Panasonic Toughpads which replaced laptops and printed navigational charts. This has removed 27kg of paper per aircraft per flight, equating to a reduction of over 1,900 tonnes of CO2 emissions for easyJet as a whole per year. • The airline's enhanced maintenance programme washes the engine's compressors routinely to ensure they operate as efficiently as possible. Although some of these measures reduce CO2 emissions per flight by relatively small amounts, easyJet's large number of flights per day means the total savings are significant. easyJet was also among the first supporters of aviation's entry into the European Union's Emission Trading System (ETS), an important step to ensuring that aviation is helping to tackle climate change. easyJet continues to support efforts to ensure that all aviation is brought into a scheme to tackle emissions globally. Investing in an efficient fleet An important factor in easyJet's carbon emissions reduction and fuel efficiency will be the introduction of the new generation of Airbus short-haul aircraft. In 2013 easyJet confirmed an order for 100 new generation Airbus A320neo aircraft for delivery from 2017 to 2022 and has taken purchase rights on a further 100 aircraft. These aircraft, equipped with CFM LEAP-1A engines and wing 'Sharklets', will be 13% to 15% more fuel efficient than existing aircraft types. easyJet has also worked with Airbus on a new cabin design for A320 family aircraft, which will add a further six seats, whilst maintaining the current level of passenger comfort. The first new aircraft with this cabin design is due to be delivered by Airbus in May 2016 and the cabin layout is planned to be retrofitted to existing A320 aircraft between autumn 2016 and spring 2018. This will create the opportunity for easyJet to further increase the number of passengers on each aircraft, contributing to increased environmental efficiency. To further reduce emissions in the longer term, significant progress in the development of a new generation of aircraft will be necessary. While there has been some progress in the short-haul market, a further step change in efficiency is necessary. easyJet will continue to press the manufacturers to deliver this and supports the establishment of international minimum standards to drive the development of new technology aircraft. Corporate responsibility continued ENVIRONMENT easyJet continues to seek ways to reduce the impact of its operations on the environment. easyJet's largest cost and biggest impact on the environment is its fuel and the associated carbon emissions. This means that easyJet's continued efforts to reduce its fuel usage and costs also have the effect of reducing the airline's impact on the environment. Environmental concerns have an influence on public policy towards aviation across Europe, such as restrictions on airport expansion and levels of passenger taxes. It is therefore also in the Company's interest to ensure that both easyJet and the wider industry properly address environmental concerns. Climate change The whole airline industry will continue to rely on the use of fossil fuels in the short and medium-term. Unlike some other industries, aviation does not have a clear alternative to jet fuel in the coming years. easyJet believes the industry must show that it is making continual improvements in efficiency and optimising the use of these fossil fuels, whilst also supporting the longer- term technological change necessary to deliver more sustainable flying. Sustainable Aviation, a UK body made up of airlines, aviation manufacturers, air traffic control providers and other organisations in the sector, supports efforts to reduce carbon emissions and has produced a carbon emissions roadmap. This shows that UK aviation is able to accommodate significant growth to 2050 without a substantial increase in absolute carbon emissions through a number of measures to improve aircraft fuel efficiency and international carbon trading. easyJet plays an active role in the delivery of this carbon emissions roadmap. easyJet's efficient business model means that the airline has a continued focus on reducing emissions and fuel burn for each aircraft. It has a young, efficient fleet which features advanced technology and is flown efficiently. easyJet's ongoing programme to reduce emissions and increase fuel efficiency is overseen by the airline's Fuel Board, which leads the airline's work to use fuel efficiently. The programme includes: • The introduction of lightweight Recaro seats that make each aircraft almost 600kg lighter, a 26% seat weight reduction. These seats have been a standard feature of aircraft delivered to easyJet since April 2013 and are now fitted in 37 aircraft. • 'Sharklet' wing tips which make the aircraft more fuel efficient. This technology delivers up to 4% savings in fuel consumption and consequent reductions in CO2 emissions. These have been standard on aircraft delivered to easyJet since August 2013 and have also been retrofitted to six existing aircraft, so are now a feature of 38 easyJet aircraft. 40 easyJet plc Annual report and accounts 2015 CARBON EMISSIONS PER PASSENGER KILOMETRE (G) 81.05g 85.48 84.60 83.76 82.03 81.05 -1.2% from 2014 2011 2012 2013 2014 2015 easyJet's CO2 emissions easyJet's CO2 emissions this year were 6.1 million tonnes, compared to 5.9 million tonnes for the 2014 financial year, an increase of 3.4%. The increase in overall emissions has been due to the continued expansion of easyJet's operations, as this year easyJet's passenger numbers increased by 6% compared to 2014. easyJet's calculation of emissions is based on fuel burn measurement, which is verified to comply with the European Union's Emission Trading System requirements. CO2 equivalents from emissions of other greenhouse gases are not included as there are no conversion factors available for these emissions from aircraft fuel burn. easyJet's route network primarily overlaps with legacy airlines, which tend to operate older and less efficient fleets. easyJet aircraft on average carry more passengers than aircraft of many other airlines operating on similar routes, which means carbon emissions per passenger are lower. This transfer of passengers from less efficient airlines means that easyJet is contributing to the reduction of aviation carbon emissions. To obtain a better understanding of how efficiently easyJet carries its passengers the airline also monitors emissions per passenger kilometre. This year easyJet's carbon emissions per passenger kilometre, the standard industry measure of efficiency, were 81.05 grams per passenger kilometre, down from 82.03 grams per passenger kilometre in financial year 2014. In 2013, easyJet set targets for the reduction of its carbon emissions per passenger kilometre of 2.5% by 2017 and 5% by 2022. easyJet has already exceeded the 2017 target, with per passenger kilometre emissions already 3.2% lower in 2015 than 2013, and is on track to exceed the 2022 target. As easyJet expects to exceed its current emissions reduction target and plans to increase the number of passengers on each aircraft, it has increased its target. easyJet's new target is to reduce its carbon emissions per passenger kilometre by 8% by 2020 compared to 2013. easyJet's progress towards this new target will be overseen by the airline's Fuel Board. i S t r a t e g c r e p o r t G o v e r n a n c e A c c o u n t s Local air quality Local air quality impact arises from nitrogen oxides (NOx) emissions during aircraft take-offs and landings. easyJet's new engines feature a tech insertion which reduces NOx emissions by around 25%. These are in use in 67.8% of easyJet's aircraft. Noise easyJet wants to be a good neighbour in the communities around the airports where it operates and the impact of aircraft noise on residents is an important consideration. The airline complies with local rules that govern noise at airports (such as curfews and routings to avoid built-up areas). easyJet aircraft meet the tightest international noise standards (ICAO Chapter 4). easyJet also works locally with airports and air traffic control to put in place noise mitigation activities that best fit each airport. easyJet's work to improve the efficiency of flying has also reduced the noise impact. For example, a change in the flap settings used for landings has improved fuel efficiency and reduced noise levels at landing. At London Gatwick, easyJet's largest base, the airline is a leader in the use of Continuous Descent Approaches in which aircraft descend more efficiently and quietly. This year the Company has worked to further reduce aircraft noise in response to comments from local residents about the A320 family aircraft of all airlines, particularly at London Gatwick. All new aircraft delivered to easyJet since June 2014 are fitted with 'vortex generators' to prevent a particular sound due to airflow under the wing. From November 2015 easyJet will begin an engineering programme to modify 197 existing aircraft with vortex generators. It expects to complete the programme by March 2018. Waste management easyJet seeks to recycle as much waste as possible. On board, easyJet has a two-bag waste collection system which separates recyclable material such as newspapers, plastic bottles and metal cans from general waste. The airline does not have control of the final management of on-board waste which is dependent on the facilities at each airport where waste is collected by local cleaning and ground handling contractors. easyJet also has recycling in place in its offices and hangars around its network. This year a working group has been established to look at how easyJet can reduce waste across the airline's operations. This is being led by Captain Stuart Green, an easyJet pilot based in Luton who has completed an MBA with a focus on airline sustainability. The working group is considering all aspects of easyJet's operations and in particular on-board waste. This includes working with easyJet's supply chain, including with Airbus on potential on-board solutions and Gate Gourmet to reduce waste arising from the sale of on board food and beverages. The group is seeking improvements which will also engage staff and customers in the process of waste reduction. www.easyJet.com 41 Employee research suggests the Customer Charter is well established amongst easyJet employees. 84% of over 4,000 people who took part in easyJet's employee engagement survey agreed that they understood how they can deliver the promises in the Customer Charter. This year easyJet has focused on how the airline applies the Customer Charter during times of disruption. In March easyJet Customer Champions came together from across the airline for the annual Customer Meeting, a forum for knowledge and idea sharing. They created an internal set of guidelines defining how easyJet employees should support customers during disruption in the airline's airports. These behaviours have also since been communicated to easyJet's ground crews across the airline's network. easyJet has also improved how it communicates with customers when their travel plans have been disrupted. To ensure timely and relevant information is sent to customers, a new team has been established in the Operations Control Centre in Luton, solely focusing on customer communications during disruption. This team provides information to customers through text messages, emails and live updates on easyJet's Flight Tracker tool. Using digital technology to enhance the customer experience easyJet uses digital technology to improve the customer experience. This year it launched further innovations to help make it easier to book, manage travel and fly with easyJet. Its digital platform is a key point of differentiation. easyJet believes it has significant advantages in the capability of its web platform, Customer Relationship Management (CRM) data and mobile offering. During the year easyJet had over 500 million visits across all platforms, an 18% increase in the last two years, and grew web conversion by 13% over the same period. easyJet's CRM enables its customers to benefit from increasing levels of personalisation across several channels, with examples such as saved passport details, targeted marketing campaigns via email and text message and bespoke offers from its affiliate partners. The user experience has been further developed over the year, with greater ease of interaction on the website and mobile and optimised layouts and design. The customer help web pages were also re-launched, as part of easyJet's strategy to make it easier for customers to resolve simple queries and encourage self-service. ENHANCING THE CUSTOMER EXPERIENCE Corporate responsibility continued EASYJET'S CUSTOMERS easyJet's cause is to make travel easy and affordable. It wants to provide its customers with a good and safe service, with an emphasis on a friendly experience. easyJet wants to be open and honest with its customers, to build lasting relationships with them. Customer Charter easyJet's Customer Charter, co-created with over 300 employees including pilots, cabin crew and contact centre employees, was published in 2013 and sets out what customers should expect when they travel with easyJet: • Safety first, we never compromise • On your side, we see it from your point of view • A big smile, friendly service is our passion • Make it easy, at every step • Open and upfront, we will always be straight with you • Customer at the heart of easyJet This year easyJet has continued to work to embed its Customer Charter commitments across the Company. FEARLESS FLYER easyJet continues to run its Fearless Flyer programme to help those who either have a fear or nervousness of flying, to overcome them. The course consists of two parts; in the first part an experienced easyJet captain deals with any misconceptions that participants may have about flying. In addition, phobia expert Lawrence Leyton teaches people proven techniques to help overcome the anxieties and concerns nervous flyers typically have. In the second part, participants and travelling companions go on an 'experience flight' operated by easyJet. Since 2013 more than 2,500 people have completed the course and flown on an experience flight. 42 easyJet plc Annual report and accounts 2015easyJet has put significant focus on the mobile offering over the past two years, with an award-winning app that enables mobile hosting through the airport, disruption notification live with the ability to change flights, and saved personal data such as payment details. Recently added features include a passport scanning function to add passenger information and the use of Apple's finger print 'Touch ID' technology to retrieve previously submitted information. easyJet also created an Apple Watch app to coincide with Apple's launch of the device, extending the functionality of the easyJet app. easyJet will be investing substantially in its digital platform over the next three years, as it continues to innovate and maintain its leadership position in the sector. easyJet is working to develop the first fully-integrated e-commerce platform in the airline industry. easyJet has also continued to innovate in other areas across the business. In June easyJet showcased new technology such as engineering drones and prognostics software. easyJet is also investing in research around Artificial Intelligence to exploit the large amounts of data generated by our operations. On-time performance easyJet is focused on delivering solid operational performance. This is reflected in all its operating procedures, without compromising safety. easyJet recognises departing and arriving on time is the main influence on customer satisfaction. It therefore considers ways to improve how it delivers the best performance and can meet its aim of being a leading airline for performance and customer service. For example, easyJet's customer experience improvement plan, Triple C – Customer, Communication, and Consistency involves working with its ground handling partners to improve the boarding process, which is an important factor in achieving punctuality and customer satisfaction. This year on-time performance (arrivals within 15 minutes of the scheduled time) was 80%, despite an operationally challenging year which included many external events outside of easyJet's control. The growth in demand for air travel has led to an increase in airport and airspace congestion which has caused delays. This has put pressure on easyJet's busy operation, particularly at London Gatwick and in the Greek islands. A fire in the Rome Fiumicino terminal in May 2015 also heavily affected the operation, as well as other airlines' operation, due to restrictions on capacity applied by the authorities. easyJet was required to cancel over 1,000 flights and other flights had to be temporarily transferred to Ciampino, Rome's secondary airport. Overall, the weather was less disruptive than previous years, with a relatively mild and calm winter and less volatile summer storms. The operation was also adversely affected by air traffic control strike action mainly in the French and Italian airspace, most notably the French strike in April 2015 which led to over 600 flight cancellations over the two-day period. Customer satisfaction easyJet runs an extensive 'voice of the customer' programme, based on customer satisfaction surveys (which customers are invited to complete shortly after taking a flight) and the online community of customers. The customer satisfaction survey covers all aspects of the customer journey from the booking experience through to arrivals. easyJet received over 390,000 responses last year. The online community has over 900 members: over 500 in the UK, more than 150 each in France and Italy, and over 120 in Switzerland. easyJet has gathered feedback from community members on over 50 topics about many aspects of the customer experience. This year has seen periods of lower on-time performance, including instances due to factors outside of easyJet's control, such as industrial action by air traffic controllers. This has resulted in a fall in customer satisfaction to 75% at the end of September 2015. easyJet has launched a new survey for customers whose flights are disrupted by a long delay, a diversion or cancellation. It wants to better understand how to improve the management of these incidents and minimise the impact on the overall customer experience. ON-TIME PERFORMANCE (%) 88 87 85 80 79 80% -5ppt from 2014 2011 2012 2013 2014 2015 CUSTOMER SATISFACTION* (%) 75% 76 80 80 78 75 -3ppt from 2014 2011 2012 2013 2014 2015 * Results prior to 2014 have been recalibrated to be consistent with the survey basis adopted in 2014. 43 Strategic reportGovernanceAccountswww.easyJet.comCorporate responsibility continued AIRBUS Airbus is one of easyJet's most important suppliers and this is reflected in the close and transparent relationship maintained during the assembly and delivery of each aircraft. Using on-line tools, Airbus is able to provide easyJet with near real-time data for each delivery which allows the airline to ensure quality is maintained at each stage of the build process. This partnership has developed over 12 years of aircraft deliveries and specific measurements have been introduced providing easyJet with full oversight at each stage. This efficient interface allows the airline to comment, question or challenge within a short time scale, minimising any impact on the overall delivery process. easyJet took delivery of its 250th Airbus family aircraft in spring 2015. EASYJET'S SUPPLIERS easyJet's suppliers have an important role in making travel easy and affordable for the airline's customers. The Company seeks to have an open, constructive and effective relationship with all suppliers, to contribute to its success. easyJet has established a supplier relationship management framework, which gives guidance to easyJet managers who lead relationships with suppliers. The management framework is developed around easyJet's core values and is based on the principle that suppliers are managed in the same way that easyJet manages its people, and that suppliers' rights and responsibilities are clearly set out. When tendering for new suppliers, easyJet seeks information from suppliers on factors including quality, health and safety, environmental practices, sub-contracting arrangements and tax compliance. CLEANING SUPPLIERS easyJet relies on its on-board cleaning suppliers to ensure that each aircraft is well presented for passengers and ready in time for its first flight of the day. To engage with these suppliers easyJet has introduced a monthly cleaning newsletter, showing customer satisfaction with cleanliness and delays attributed to cleaning at each base, as well as updates on current priorities. 44 easyJet plc Annual report and accounts 2015EASYJET SPECIAL ASSISTANCE ADVISORY GROUP REPORT FROM THE CHAIR – RT HON THE LORD BLUNKETT, OF BRIGHTSIDE AND HILLSBOROUGH The easyJet Special Assistance Advisory Group (ESAAG) was established in 2012 to provide feedback and guidance to easyJet on the services it provides to passengers who require special assistance. The group is made up of experts in disability issues and accessible travel. We meet regularly with easyJet managers to discuss the Company's forward proposals, best practice and emerging issues. Crucially, oversight and regular reporting back on the rolling programme of training at every level has helped to support staff in doing a better job with greater job satisfaction. The group takes a pan-European approach and includes members from key easyJet markets: the UK, France, Switzerland and, most recently, Italy. One of our meetings was hosted in Paris by the French disability organisation Association pour Adultes et Jeunes Handicapes. easyJet carries more than 400,000 passengers who need special assistance every year. This is a growing number and as societies across Europe age it is very likely that more people will need this assistance in the future. easyJet wants to be an airline for everyone, including people with disabilities and those with a variety of challenges requiring additional support. Over the last year ESAAG has helped easyJet to introduce on-board wheelchairs across its fleet. The group has also been involved in changes to cabin layout, which includes a newly designed accessible toilet. ESAAG has also had a role in wider easyJet projects, such as the consolidation of easyJet operations at London Gatwick into the North Terminal and digital developments such as improved information and advice, the ongoing reconfiguration of the easyJet website and apps for use in navigating airports. The customer satisfaction amongst easyJet passengers with reduced mobility was 87.4% this year, which was higher than for customers in general. We believe this reflects the focus easyJet and ESAAG give to providing the right support to passengers who need special assistance. ESAAG is seeking to improve the whole journey for passengers who need special assistance. Customers understandably expect that when they book assistance this will be done seamlessly between the airline, assistance provider and the relevant airports. ESAAG sees its task as facilitating a speedier and more customer friendly experience for all passengers and the improvement in reputation and therefore customer satisfaction. But considerable emphasis is needed on the different commercial elements, which make up that experience and for which under European regulation the airline, as far as the customer is concerned, is responsible. This is why ESAAG has this year produced a pan-European charter on meeting the needs of air travellers with disabilities. The Charter recommends best practice for all aspects of aviation special assistance. It was launched at the European Parliament and has since been discussed at a UK aviation industry session jointly hosted by ESAAG and the UK CAA. ESAAG will continue to use the Charter to engage with stakeholders across Europe. I would like to thank the members of ESAAG for their work and easyJet for continuing to engage with and support the group. ESAAG is helping to deliver real improvements for passengers and is driving competition within the industry to improve the service offered to travellers. We look forward to continuing this work. Rt Hon The Lord Blunkett, of Brightside and Hillsborough Chair of easyJet Special Assistance Advisory Group ESAAG members Rt Hon The Lord Blunkett, of Brightside and Hillsborough – Chair Ann Bates OBE – Independent accessible transport adviser Roberto Castiglioni – Member of the Access to Air Travel Advisory Group UK CAA, Access to Air Travel Consultant, and Editor-in-Chief Reduced Mobility Rights Ann Frye – Member of CAA Consumer Panel; Director, PassePartout Training Ltd; Visiting Professor, University College London Mervyn Kholer – Age UK Stefano Medaglia – Accessible transport adviser and architect based in Milan Jean-Marie Munier – Former adviser at Association pour Adultes et Jeunes Handicap Marcus Rocca – Mobility International Schweiz 45 Strategic reportGovernanceAccountswww.easyJet.comChairman’s statement on corporate governance Committed to maintaining high standards DEAR SHAREHOLDER At easyJet, we are committed to maintaining high standards of corporate governance to enhance performance and for the protection of our shareholders. I would like to highlight, in particular, the following key areas of governance during 2015: Strategy As a Board, we need to be confident that our strategy remains appropriate and that we are identifying appropriate strategic priorities. This year the Board held meetings in March and September at which we challenged and shaped the strategic priorities brought by management. Board and Committee composition There were a number of changes to the Board during the year. After five years at easyJet Chris Kennedy left on 1 September 2015 to become Chief Financial Officer at ARM Holdings. After nine years of service, David Bennett retired from the Board on 1 October 2014 and Professor Rigas Doganis retired from the Board on 1 December 2014, although he continues to chair the Safety Committee until 29 February 2016. John Browett has announced his decision to step down from the Board on 31 December 2015 after almost nine years. I would like to thank all of them on behalf of the Board for their commitment and contribution. I am delighted to welcome Andrew Findlay, who joined as Chief Financial Officer on 2 October 2015 and Chris Browne who will join the Board as a Non-Executive Director on 1 January 2016. The membership of the Board’s Committees as at 30 September 2015 can be found on pages 47-49. Board effectiveness Each year, the Board undertakes a formal evaluation of its effectiveness. This year we have had this process externally facilitated by Independent Audit Limited. In addition, Charles Gurassa, the Senior Independent Director, has also led a review of my performance with input from the other Non-Executive Directors. Further details of the evaluation process are provided on page 61. Following this review, I am satisfied that the Board and its Committees are performing effectively and that there is the appropriate balance of skills, experience, independence and knowledge of the Group to enable the Directors to discharge their respective duties and responsibilities effectively. I am also satisfied that the members of the Board, in particular the Non-Executive Directors, have sufficient time to undertake their roles at Board and Committee level with the Company, so as to be able to discharge their responsibilities effectively. Board Committees The Board delegates certain of its responsibilities to the Board Committees to enable it to carry out its functions effectively. A diagram of the Board governance structure is set out on page 52. The Audit Committee, chaired by Adèle Anderson, led a robust competitive tender process, leading to the Board’s recommendation to reappoint PricewaterhouseCoopers LLP as the Company’s auditors. The Board will recommend to the shareholders at the 2016 Annual General Meeting the reappointment of PricewaterhouseCoopers LLP as auditors for the year ending 30 September 2016. Further details of the audit tender process are provided in the Audit Committee report on pages 54 to 57. Structure of Corporate Governance Report The Corporate Governance Report which follows is intended to give shareholders an understanding of the Company’s corporate governance arrangements and how they operated during the year. The Corporate Governance Report includes reports from each of the Committee Chairs to provide details on key matters addressed by the Committees during the year. We have also set out a separate section (on pages 60 to 62) to provide a detailed description of how the Company has complied with the principles of the UK Corporate Governance Code. Compliance with the UK Corporate Governance Code The Board considers that it and the Company have, throughout the year, complied without exception with the provisions of the UK Corporate Governance Code (September 2014), which is the version of the Code which applies to the Company for its 2015 financial year. The Code is issued by the Financial Reporting Council and is available for review on the Financial Reporting Council’s (FRC’s) website: https://www.frc.org.uk JOHN BARTON Non-Executive Chairman 46 easyJet plc Annual report and accounts 2015 Board of Directors An experienced and balanced board 1. JOHN BARTON, Non-Executive Chairman 2. CHARLES GURASSA, Non-Executive Deputy Chairman and Senior Independent Director 3. CAROLYN MCCALL OBE, Chief Executive 4. ANDREW FINDLAY, Chief Financial Officer 5. ADÈLE ANDERSON, Independent Non-Executive Director 6. DR. ANDREAS BIERWIRTH, Independent Non-Executive Director 7. JOHN BROWETT, Independent Non-Executive Director 8. KEITH HAMILL OBE, Independent Non-Executive Director 9. ANDY MARTIN, Independent Non-Executive Director 10. FRANÇOIS RUBICHON, Independent Non-Executive Director Turn to the next page for the full Director biographies 47 Strategic reportGovernanceAccountswww.easyJet.comBoard of Directors continued What they bring to the table 1. John Barton Non-Executive Chairman First appointed: May 2013 Key areas of prior experience: Finance, Governance Current external appointments: Chairman, Next plc. Director of Matheson & Company Limited and SSP Limited. Previous relevant experience: John has also served as Chairman of Catlin Group Limited (2012-2015), Cable and Wireless Worldwide plc (2010-2012), Brit Holdings plc (2007-2009) and Wellington Underwriting plc (2003-2006). John was previously Senior Independent Director of WH Smith plc (2006-2011) and Hammerson plc (1998-2007). He was also the Chief Executive of insurance broker JIB Group plc (1984- 1997). After JIB’s merger with Lloyd Thomson he became Chairman of the combined group, Jardine Lloyd Thompson Group plc (1997-2001). 2. Charles Gurassa Non-Executive Deputy Chairman and Senior Independent Director First appointed: June 2011 Key areas of prior experience: Airline industry Current external appointments: Non-Executive Chairman, Genesis Housing Association Limited and Netnames. Senior Independent Director, Merlin Entertainments plc. Non-Executive Director, Genfinance II plc. Trustee, English Heritage. Trustee, Migration Museum. Previous relevant experience: Charles’s career has been primarily in the travel, tourism and leisure industries in a number of senior positions including Chief Executive of Thomson Travel Group Plc (1999-2003), Executive Chairman of TUI Northern Europe Limited (1999-2003) and Director of Passenger and Cargo at British Airways plc (1995-1999). Charles retired from full time work in June 2003 to pursue a portfolio career. He was previously Non-Executive Chairman of LOVEFiLM International Limited (2006-2011), Phones4U Limited (2007-2011), Virgin Mobile plc (2004-2006), Alamo/National Rent a Car (2004-2006), 7Days Ltd (2003-2010) and Non-Executive Director at Whitbread plc (2000-2009) and MACH (2007-2013). 3. Carolyn McCall OBE Chief Executive First appointed: July 2010 Key areas of prior experience: Media Current external appointments: Non-Executive Director, Burberry Group plc and member of the Audit, Remuneration and Nominations Committees. Director of French Chamber of Commerce. Previous relevant experience: Prior to joining easyJet, Carolyn was Chief Executive of Guardian Media Group plc (2000-2010). She was also Non-Executive Director of Lloyds TSB Limited (2008-2009), Tesco plc (2005-2008) and New Look plc (1999-2005). Carolyn was Chair of Opportunity Now (2005-2009) and former President of Women in Advertising and Communications London (WACL) (2002-2003). 48 4. Andrew Findlay* Chief Financial Officer First appointed: October 2015 Key areas of prior experience: Finance Previous relevant experience: Andrew was previously Chief Financial Officer at Halfords plc (2011-2015). Prior to this, Andrew was Director of Finance, Tax and Treasury at Marks and Spencer Group plc (2009-2011). He has also held senior finance roles at the London Stock Exchange and at Cable and Wireless both in the UK and US. 5. Adèle Anderson Independent Non-Executive Director First appointed: September 2011 Key areas of prior experience: Finance Current external appointments: Non-Executive Director, Intu Properties plc and Chair of Audit Committee and member of Remuneration Committee. Chair of Audit Committee, Save the Children International. Member of Board of Trustees, Save the Children UK and Save the Children International. Previous relevant experience: Until July 2011, Adèle was a partner in KPMG and held roles including Chief Financial Officer of KPMG UK, Chief Executive Officer of KPMG’s captive insurer and Chief Financial Officer of KPMG Europe. 6. Dr. Andreas Bierwirth Independent Non-Executive Director First appointed: July 2014 Key areas of prior experience: Airline industry Current external appointments: Chief Executive Officer, T-Mobile Austria GmbH. Member of the Board of Austrian Airlines AG, German-Austrian Chamber of Commerce, Lindner Hotels AG, Austria Vienna, Austria’s Association of Industry and Casinos Austria AG (on behalf of the Austrian Government). Previous relevant experience: Andreas previously served as a Member of the Board at Austrian Airlines AG (2008-2012), including as Chief Commercial Officer for the whole period. He also served as Vice President Marketing of Deutsche Lufthansa AG in Frankfurt (2006-2008). Prior to this, Andreas was first Deputy Managing Director and later Managing Director at Germanwings (2002-2006). * Prior to Andrew Findlay’s appointment in October 2015, Chris Kennedy was Chief Financial Officer from July 2010 until September 2015. easyJet plc Annual report and accounts 2015NNFRFAIS7. John Browett Independent Non-Executive Director First appointed: September 2007 Key areas of prior experience: Retail, Strategy Current external appointments: Chief Executive Designate, Dunelm Group plc and will become Chief Executive Officer on 1 January 2016. Director, Octopus Investments Limited. 9. Andy Martin Independent Non-Executive Director First appointed: September 2011 Key areas of prior experience: Finance, Airline industry Current external appointments: Group Chief Operating Officer-Europe, UK and Japan, Compass Group plc. Director, Compass Group Holdings plc and Hospitality Holdings Ltd. Previous relevant experience: John was previously Chief Executive Officer at Monsoon Accessorize (2013-2015), Senior Vice President of Retail at Apple Inc (2012) and Chief Executive Officer of Dixons Retail plc (2007-2012). John has also held a number of Executive Director positions at Tesco plc, including CEO of Tesco.com, Operations Development Director and Group Strategy Director (1998-2007). John was at the Boston Consulting Group Limited (1993-1998). 8. Keith Hamill OBE Independent Non-Executive Director First appointed: March 2009 Key areas of prior experience: Finance, Strategy Current external appointments: Chairman, Horsforth Holdings Limited and Aldrington Investments Limited. Non-Executive Director, Samsonite International SA. Previous relevant experience: Keith was Chairman of Travelodge (2003-2012) and Go, prior to its acquisition by easyJet in 2002, (2001-2002). His other previous Chairman roles include Tullett Prebon plc (2006-2013), Collins Stewart plc (2000-2006), Avant Homes Limited (2013- 2014), Heath Lambert Limited (2005-2011) and Moss Bros Group plc (2001-2008). His Non-Executive Director roles include Max Property Group plc (2010-2014), Electrocomponents plc (1999-2008) and Cadmus Communications Corporation (2002-2007). Keith was Finance Director of WH Smith (1996-2000), of Forte plc (1993-1996) and of United Distillers (1991-1993), Director of Financial Control at Guinness plc (1988-1991) and a Partner in Price Waterhouse (1986-1988). Previous relevant experience: Prior to joining the Compass Group plc in 2004, Andy was Group Finance Director at First Choice Holidays plc (now TUI Travel plc) which had an airline as part of a wider tour operator business. Andy has also held senior financial positions with Granada Group plc (1996-2001), Forte plc (1994-1996) and Arthur Andersen (now part of Deloitte) (1985-1994) including Partner (1992-1994). 10. François Rubichon Independent Non-Executive Director First appointed: July 2014 Key areas of prior experience: Airline industry Current external appointments: Executive Vice President of Human Resources, General Affairs & Organization at Société Française du Radiotéléphone (SFR). Previous relevant experience: François was Deputy Chief Executive Officer and Chief Operating Officer of Aéroports de Paris for seven years. Francois has worked in a number of advisory positions within government for the Minister of Transport, Infrastructure, Housing, Tourism and Maritime Affairs (2002-2005) and as a social adviser to the then French Prime Minister. BOARD COMMITTEES Safety Committee Remuneration Committee Audit Committee Nominations Committee Finance Committee IT Governance and Oversight Committee 49 Strategic reportGovernanceAccountswww.easyJet.comSRARISIAFRANINFExecutive Management Team An experienced team to deliver 1. ALITA BENSON, Group People Director 2. WARWICK BRADY, Chief Operating Officer 3. CHRIS BROCKLESBY, Chief Information Officer 4. MIKE CAMPBELL, Group Director, Transformation 5. PETER DUFFY, Group Commercial Director: Customer Product and Marketing 6. ANDREW FINDLAY, Chief Financial Officer 7. RACHEL KENTLETON, Group Director: Strategy and Implementation 8. CATH LYNN, Group Commercial Director: Markets, Network and Pricing 9. CAROLYN MCCALL OBE, Chief Executive 10. PAUL MOORE, Communications Director 11. KYLA MULLINS, General Counsel and Director of Regulation & Corporate Governance 50 easyJet plc Annual report and accounts 20151. Alita Benson Group People Director First appointed: June 2011 Key areas of prior experience: Human Resources Previous relevant experience: Prior to joining easyJet, Alita was Head of HR Business Partners at T-Mobile for nine years and led the T-Mobile UK HR input for the merger with Orange (2001-2011). 2. Warwick Brady MBA Chief Operating Officer First appointed: May 2009 Key areas of prior experience: Low Cost Airline experience in Europe, India & Asia, Private Equity experience manufacturing, retailing, ecommerce Current external appointments: Non-Executive Director, FirstGroup plc Previous relevant experience: Warwick joined easyJet in 2009 on the management board as Director of Procurement responsible for Fleet, Regulation, Central and Airport Procurement before becoming Group Operations Director in October 2010. Prior to easyJet Warwick was CEO at Mandala Airlines (2007- 2009), Chief Operating Officer of Air Deccan (2005-2007), Deputy Director Operations at Ryanair (2002-2005) where he held various executive roles including Deputy Chief Executive Officer of Buzz following its acquisition from KLM. 3. Chris Brocklesby Chief Information Officer First appointed: March 2015 Key areas of prior experience: IT Previous relevant experience: Before joining easyJet, Chris was CIO at Tesco Bank and was a member of the Executive Committee with responsibility for IT, Change Management, Supplier Management and Procurement (2007-2015). Chris also spent 18 years at Accenture in their Financial Services and Technology practices. He became a partner in 2000 and led the UK FS Systems Integration practice as well as leading work at clients such as AXA Life, Zurich Financial Services, Standard Life and Prudential. 4. Mike Campbell Group Director, Transformation First appointed: October 2005 Key areas of prior experience: Human Resources, Technology, Transformation Previous relevant experience: Mike has previously held other senior positions at easyJet including Europe Director and People Director. Before joining easyJet, Mike worked at Wedgwood in a broad role as Director of People and Brands and Managing Director for Canada, Australia and Pan-Asia (2000-2005). Prior to that, Mike worked for 14 years at Fujitsu in a variety of development and personnel roles across Europe, Asia, Africa and the Middle East, ending up as Chief Personnel Officer. 5. Peter Duffy Group Commercial Director: Customer Product and Marketing First appointed: February 2011 Key areas of prior experience: Marketing Previous relevant experience: Before joining easyJet, he was Marketing Director for Audi in the UK (2007-2011). Prior to that, Peter was Marketing Services Director at Barclays (2005-2007). 6. Andrew Findlay* Chief Financial Officer See Board of Directors’ profiles. 7. Rachel Kentleton Group Director: Strategy and Implementation First appointed: February 2014 Key areas of prior experience: Finance, Investor Relations, Strategy, Programme Management. Current external appointments: Non-Executive Director, Persimmon plc and member of the Audit and Risk Committees. Previous relevant experience: Rachel is a qualified accountant and prior to joining easyJet in 2007, she worked in a number of finance roles at Unilever (1991-1997), NatWest (1997-2000), Diageo (2000-2006) and SABMiller (2006-2007). 8. Cath Lynn Group Commercial Director: Markets, Network and Pricing First appointed: September 2009 Key areas of prior experience: Commercial, Operations, Procurement Previous relevant experience: Cath joined easyJet in 2002 following the merger of Go and has carried out a number of senior roles at easyJet including Head of Ground Operations, Head of Airport Development and Procurement, Head of Network Development, Network and Planning Director, Customer and Revenue Director and Group Commercial Director. Prior to easyJet Cath spent 12 years in retail for J Sainsbury before joining Go (1998-2002) where she was part of the management buy-out team and headed up cabin services, ground operations and customer service. 9. Carolyn McCall Chief Executive See Board of Directors’ profiles. 10. Paul Moore Communications Director First appointed: November 2010 Key areas of prior experience: Communications Previous relevant experience: Before joining easyJet, Paul was Group Public Affairs and Communications Director for FirstGroup (2006-2010). Prior to that Paul worked for Virgin Atlantic Airways for ten years as its Director of Corporate Affairs (1997-2006). 11. Kyla Mullins General Counsel and Director of Regulation & Corporate Governance First appointed: February 2015 Key areas of prior experience: Legal, Company Secretarial, Regulation Previous relevant experience: Kyla is a qualified solicitor, having spent four years with Clifford Chance (1989-1993) before moving in-house. Over the past 20 years she has held senior legal positions in the media, entertainment and strategic outsourcing sectors. Before joining easyJet Kyla was General Counsel and Company Secretary at Mitie Group plc (2014-2015), Global General Counsel of EMI Music (2009-2012), and Group Legal Director at ITV Plc and Granada Media (2000-2007). * Prior to Andrew Findlay’s appointment in October 2015, Chris Kennedy was Chief Financial Officer from July 2010 until September 2015. 51 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report Board committees Board committees The Committee reports that follow set out, amongst other things, the responsibilities and activities of the Committees in the past financial year. The terms of reference of each Committee are documented and agreed by the Board. The Committees’ terms of reference are available in the governance section of easyJet’s corporate website: http://corporate.easyJet.com The Chair of each Board Committee formally reports back to the Board. Details of Directors’ attendance at Board and Board Committee meetings is set out on page 60. SAFETY COMMITTEE Safety Committee Chair: Professor Rigas Doganis See pages 52 to 53 PROFESSOR RIGAS DOGANIS, CHAIR OF THE SAFETY COMMITTEE Remuneration Committee Chair: Charles Gurassa See pages 53 and 64 to 80 The Safety Committee is now in its third year and continues to make a difference to the effective safety oversight of the Board. Audit Committee Chair: Adèle Anderson Nominations Committee Chair: John Barton Finance Committee Chair: Adèle Anderson See pages 54 to 57 See page 58 See page 59 IT Governance and Oversight Committee Chair: John Browett See page 59 Membership as at 30 September 2015 (two independent Non-Executive Directors, one independent chairman) Members of the committee • Professor Rigas Doganis (Chair) • Keith Hamill • Dr Andreas Bierwirth Turn to page 60 for meeting attendance table Key responsibilities To monitor and follow up on safety incidents reported to the Board to ensure that they have been satisfactorily closed either by the Company and/or the relevant external parties. To receive, examine and monitor reports on actions taken by departments. To review and monitor the implementation of the Company’s annual safety plan. The Committee also examines specific safety issues as requested by the Board or any member of the committee. Where appropriate, the Committee reviews relevant reports published by the UK Air Accident Investigation Branch, major incidents that have affected other operators, such as the incidents suffered by Air Asia and Germanwings in the last year, as well as other external reports on matters relevant to safety and security. 52 easyJet plc Annual report and accounts 2015Independent safety reports from the Director of Safety and Security are presented at every Board meeting. The Committee ensures that both internal and relevant external events are fully investigated and that appropriate actions have been taken where necessary. The Director of Safety and Security has a direct reporting line to the Chairman which reinforces the independence of safety oversight. In addition, the Chairman of the Committee has reported to the Board with his own assessment of safety management within the airline. Further information on the Safety Management System is provided on page 31. Highlights of the 2015 financial year A range of safety-related matters have been reviewed by the Committee during the 2015 financial year involving all areas – flight operations, cabin crew, ground services and engineering. Some of these reviews followed requests from the Board to carry out detailed assessment of specific operational incidents; others were reports of safety actions taken by easyJet operational departments. These included a review of the processes, identification and use of pattern recognition for safety purposes, and also a review of the cyber security threats to easyJet’s operations and the mitigations in place to counter such threats. Changes to the Committee Although Professor Rigas Doganis stepped down from the Board of easyJet as a Non-Executive Director on 1 December 2014, he remains as Chairman of the Safety Committee until 29 February 2016. As reported in last year’s annual report, in October 2014 the Committee’s former Independent Safety Expert, Geoff Want, joined easyJet as the Director of Safety and Security. With considerable and wide-spread previous experience in aviation safety, he has made an invaluable contribution in ensuring that the Company maintains the highest safety standards and procedures. The safety team has been further strengthened by the appointment of a specialist in human factors. REMUNERATION COMMITTEE CHARLES GURASSA, CHAIR OF THE REMUNERATION COMMITTEE The Remuneration Committee’s focus was firstly on putting forward a revised Long Term Incentive Plan in its remuneration policy for shareholder approval at the 2015 Annual General Meeting. The remuneration policy has been designed to be straightforward and transparent, in alignment with the Company’s principle of having a simple and cost-effective approach. The second area of focus was recommending a package for the incoming Chief Financial Officer which aligned with our policy. Membership as at 30 September 2015 (all members are independent Non-Executive Directors) Members of the committee • Charles Gurassa (Chair) • John Browett • François Rubichon Turn to page 60 for meeting attendance table Key responsibilities To assess and make recommendations to the Board on the policies for remuneration for each of the Executive Directors and the Chairman, as well as the level and structure of remuneration for senior management. Highlights of the 2015 financial year • The Committee reviewed and put forward a revised Long Term Incentive Plan which was approved at the Company’s 2015 Annual General Meeting as part of the remuneration policy. • The Committee reviewed and put forward proposals for the package for the new Chief Financial Officer. The detailed Directors’ remuneration report is on pages 64 to 80. Additional disclosures under the UK Corporate Governance Code Hewitt New Bridge Street (HNBS) (an AON Company) has been appointed by the Committee as easyJet’s remuneration consultants. HNBS is a member of the Remuneration Consultants Group and complies with its code of conduct. HNBS has no other connection with the Company. However, a sister company in the AON Group provides pension and flexible benefits administration services to the Company. 53 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report continued AUDIT COMMITTEE ADÈLE ANDERSON, CHAIR OF THE AUDIT COMMITTEE During the year, the Audit Committee has continued to devote significant time to reviewing the Group’s system of risk management, internal controls, the integrity of the Group’s financial reporting and the effectiveness of both internal and external audit. In addition, the Committee has led a competitive tender for external audit services which followed best practice guidance, resulting in the recommendation to reappoint PricewaterhouseCoopers LLP as the Group auditors. The Committee welcomes the changes to the revised UK Corporate Governance Code, and the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, published in September 2014. These changes apply to the Group for the first time this year and have been areas of focus for the committee. Membership as at 30 September 2015 (all independent Non-Executive Directors) Members of the committee • Adèle Anderson (Chair) • Keith Hamill • Andy Martin The Committee members have been selected to provide the wide range of financial and commercial expertise necessary to fulfil the Committee’s duties and responsibilities. Adèle Anderson was a partner in KPMG until July 2011 and held roles including Chief Financial Officer of KPMG UK, Chief Executive Officer of KPMG’s captive insurer and Chief Financial Officer of KPMG Europe. She currently chairs the audit committees of Intu Properties Plc and Save the Children International. Keith Hamill has had considerable experience as a director of listed companies and was Finance Director of WH Smith, Forte plc and United Distillers. Andy Martin was Group Finance Director of Compass Group plc between 2004 and 2012, and prior to this held other senior financial positions with First Choice Holidays plc (now TUI Group), Forte plc and Granada Group plc. The Board considers the Committee members’ financial experience to be recent and relevant for the purposes of the Code. Turn to page 60 for meeting attendance table 54 easyJet plc Annual report and accounts 2015Main activities and responsibilities of the Committee: Please refer to the Audit Committee terms of reference for further details on the Committee’s duties and responsibilities, available in the governance section of easyJet’s corporate website, http://corporate.easyJet.com. Responsibilities How the Committee has discharged its responsibilities To monitor and review: the integrity of the financial statements and related formal announcements, and the significant financial reporting issues and judgements which they contain Review of the financial statements and announcements relating to the financial performance and governance of the Group at year end and half year. The Committee also considered the material areas in which significant judgements have been applied based on reports from both the Group’s management and the external auditors. Further information is provided in the Financial reporting and significant financial issues section. the Company’s risk management systems and internal control Review of the adequacy and effectiveness of the Group’s ongoing risk management systems and control processes, through an evaluation of: • the risk and assurance plans; • Internal Audit reports; • risk assessments; • information security and business continuity; • control themes; and • internal financial control assessments. the effectiveness of the Company’s Internal Audit function and its activities The Committee undertook an assessment of the effectiveness and independence of the Internal Audit function, which included consideration of: • key Internal Audit reports; • stakeholder feedback on the quality of Internal Audit activity; • Internal Audit’s compliance with prevailing professional standards; and • closure of Internal Audit recommendations. Further information is provided in the Internal Audit section. the Company’s relationship with the external auditors, including: The Committee considered the appointment of the external auditors, confirming and assessing their independence, objectivity and effectiveness. • their independence and objectivity; More information on: • the effectiveness of the external audit process; • how the effectiveness, independence and objectivity of the external audit • recommending the appointment, reappointment or removal of the external auditors; • approving their remuneration and terms of engagement; and • the policy on the supply of non-audit services. the adequacy and security of the Group’s arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters the Group’s systems and controls for the prevention of bribery and detection of fraud, including receiving reports on non-compliance process were assessed, is provided in the External auditors and effectiveness of external audit process section; and • the external auditors’ non-audit services, and audit tendering, is provided in the Non-audit services and the Audit tendering sections respectively. During the year, the Committee reviewed: • whistleblower reports; • reports on anti-bribery and corruption procedures; • reports on procedures on fraud and loss prevention; and • reports on credit card fraud monitoring and investigations. Other duties of the Audit Committee include: • annually reviewing their terms of reference; The Committee reviewed its terms of reference and concluded that they did not require updating. • assessing potential conflicts of interest of Directors There were no potential conflicts to be considered during the year. on behalf of the Board; and • as requested by the Board, providing advice on whether the annual report and accounts are fair, balanced and understandable. Further information on the Committee’s role on providing advice on whether the annual report and accounts is fair, balanced and understandable is provided in the Financial reporting and significant financial issues section. 55 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report continued Specific items which the Committee looked at during the financial year as part of and in addition to its main activities included: • the treasury function and accounting treatment of hedging transactions; • the accounting treatment for property, plant and equipment; • the accounting treatment of share-based payments; • the management of change initiatives in the business; • information security capabilities, policies and procedures, including mitigations around cyber attacks and incidents; and • the preparation for making a viability statement. Financial reporting and significant financial judgements The Committee assesses whether suitable accounting policies have been adopted and whether management has made appropriate estimates and judgements. For example, during the financial year, the Committee reviews the level of provisions and accruals recorded which are judgemental in nature. The Committee reviews accounting papers prepared by management which provide details on significant financial reporting judgements. The Committee also reviews reports by the external auditors on the full year and half year results which highlight any issues with respect to the work undertaken on the audit. The Committee reviews financial issues through discussion with management and the external auditors and comparison to other organisations. The number of such issues currently considered as significant are, however, limited given easyJet’s relatively simple business model and group structure which are unencumbered with legacy issues. The significant issues considered in relation to the accounts are detailed below: • The Committee reviewed the maintenance provision at the year end. A number of judgements are used in the calculation of the provision, primarily pricing, utilisation of aircraft and timing of maintenance checks. The Committee addressed these matters using reports received from management which underpin the basis of assumptions used. The Committee also discussed with the external auditors their review of the assumptions underlying the estimates used. • The Committee considered whether the carrying value of goodwill and landing rights held by easyJet should be impaired. The judgement in relation to impairment largely relates to the assumptions underlying the calculation of the value in use of the business being tested for impairment; primarily whether the strategic plan is achievable and the overall macroeconomic assumptions which underlie the valuation process. The Committee addressed these matters using reports received from management outlining the basis for assumptions used. The strategic plan used in the calculation was presented to the Board. • The Committee considered the key treasury transactions, and the application of hedge accounting. easyJet hedges forward, on a rolling basis, between 65% and 85% of the next 12 months anticipated fuel and currency requirements and between 45% and 65% of the next 12 months’ anticipated requirements. Significant exposure relating to the acquisition cost of aircraft is also managed through the use of foreign currency forward exchange contracts where 90% of the next two years forecast requirement is hedged. easyJet does not operate any other significant derivative financial instruments. However, this area remains significant due to the quantity of fuel and exchange rate hedges. • The Committee reviewed the level and calculations of key accruals and provisions which are judgemental in nature. Specifically the area of customer claims in respect of flight delays, cancellations and Air Passenger Duty. The Committee is satisfied that the judgements made by management are reasonable, and that appropriate disclosures have been included in the accounts. At the request of the Board, the Committee also considered whether the Annual report and accounts was fair, balanced and understandable and whether it provided the necessary information for shareholders to assess the Group’s position and performance, business model and strategy. The Committee is satisfied that, taken as a whole, the Annual report and accounts is fair, balanced and understandable. In reaching this conclusion, the Committee considered the overall review and confirmation process around the Annual report and accounts, including: • the input of subject matter experts, the Executive Management Team and other senior management and, where applicable, the Board and its Committees; • the processes and controls which underpin the overall review and confirmation process, including the verification process being carried out by an internal financial controls specialist (independent of the Finance function); • Internal Audit providing assurance over the audit trail for material data points relating to the non-financial statement aspects of the Annual report and accounts, and external audit providing assurance over the accounts; and • the Committee itself, as part of a continuous improvement process, emphasising to contributors the importance of providing a balanced view, especially in relation to the more subjective areas. The Committee was provided with, and commented on, a draft copy of the Annual report and accounts. In carrying out the above processes, key considerations included ensuring that there was consistency between the accounts and the narrative provided in the front half of the annual report, and there was an appropriate balance between the reporting of weaknesses, difficulties and challenges, as well as successes, in an open and honest manner. Risk management and internal control The Board, as a whole, including the Audit Committee members, consider the nature and extent of easyJet’s risk management framework and the risk profile that is acceptable in order to achieve the Company’s strategic objectives. The Audit Committee has reviewed the work done by management, the Committee itself and the Board on the assessment of the Company’s principal risks, including their impact on the prospects of the Company. As a result, it is considered that the Board has fulfilled its obligations under the Code in relation to risk management and internal controls. Further details on the Company’s principal risks and uncertainties and their impact on the prospects of the Company are set out on page 24-29. easyJet’s system of internal controls, along with its design and operating effectiveness is subject to review by the Audit Committee, through reports received from management, along with those from both internal and external auditors. Any controls deficiencies identified are followed up with action plans tracked by the Committee. Further details of risk management and internal control are set out on page 63. 56 easyJet plc Annual report and accounts 2015Audit tendering PricewaterhouseCoopers LLP were first appointed to audit the Annual report and accounts for the year ended 30 September 2006, and have therefore served a ten year term. Under EU audit reform legislation, companies are required to have a mandatory rotation of auditors after ten years, or 20 years if there is a compulsory retender at ten years. During the early summer of 2015, the Committee led a tender process for external audit services for the year ending 30 September 2016. Management met with the top 10 UK audit firms by fee income, which were then assessed by a common set of criteria. Following this assessment, a number of firms were ruled out due to irresolvable conflicts of interests/independence issues or a lack of demonstrable appetite to become the external auditor to a company of our size and scale. As part of this process a number of firms met with the Audit Committee Chair and the outgoing Chief Financial Officer. Our largest investors were invited to discuss our approach to the audit tender and three of these investors took up the invitation and contributed to our considerations. In May the Audit Committee reviewed the investor feedback and the feedback from the meetings with the firms. It was concluded that two firms should be invited to tender on the basis that: • both firms had extensive experience in delivering quality audit services; • both firms demonstrated having the high calibre resources needed to deliver quality audit services; • each firm demonstrated a willingness to participate in the audit tender and to deliver the audit services; • both firms had significant experience in auditing FTSE 100 organisations and/or organisations of comparable size and complexity to easyJet; and • neither easyJet nor the firm were aware of any apparent conflicts of interest or independence issues. Once the Request For Proposal had been issued to both firms, each was invited to put forward potential lead audit partners at a meeting with the Audit Committee Chair. Following feedback by the Company on the preferred lead audit partners, each firm was invited to attend “working with easyJet” meetings to ensure they fully understood our external audit requirements and to give an opportunity to assess the cultural fit. The lead audit partner and senior team members from each firm also met with the incoming CFO, Andrew Findlay. Each firm submitted a formal audit proposal document which was reviewed by management and the Audit Committee. On 6 July each firm presented at meetings with easyJet management. At this meeting each firm was given a technical question which they had to consider and include in their final presentation to the Audit Committee on 20 July. As part of this process, the Audit committee met with each firm without management present. The Audit Committee met on 22 July and concluded that both firms were capable of providing the services required by the Company and could be put forward to the Board. The Audit Committee agreed to recommend that the Board reappoint PricewaterhouseCoopers LLP as, on balance, they performed better against the committees pre-agreed selection and assessment criteria. Internal Audit The Audit Committee is responsible for overseeing the work of the Internal Audit function. It reviews and approves the scope of the Internal Audit annual plan and assesses the quality of Internal Audit reports, along with management’s actions relating to findings and the closure of recommended actions. The Audit Committee also considers stakeholder feedback on the quality of Internal Audit’s work. Further information on the Internal Audit function is provided on page 63. In order to safeguard the independence of the Internal Audit functions, the Head of Internal Audit is given the opportunity to meet privately with the Audit Committee without any other members of management present. External auditors and effectiveness of external audit process PricewaterhouseCoopers LLP were reappointed auditors of the Company at the 2015 Annual General Meeting. Senior management monitors the auditors’ performance, behaviour and effectiveness during the exercise of their duties, which informs the Audit Committee’s decision to recommend reappointment on an annual basis. The Audit Committee also assesses the effectiveness, independence and objectivity of the external auditors by, amongst other things: • considering all key external auditor plans and reports; • having regular engagement with the external auditor during Committee meetings and ad hoc meetings (when required), including meetings without any member of management being present; • the Committee Chair having discussions with the Senior Statutory Auditor ahead of each Committee meeting; and • following the end of the financial year, each Committee member completing an auditor effectiveness review questionnaire. Non-audit services In the 2015 financial year, easyJet did not incur any costs with PricewaterhouseCoopers LLP in respect of non-audit services (2014: £nil). In order to preserve objectivity and independence, the external auditors are not asked to provide consulting services unless this is in the best interests of the Company, in accordance with easyJet’s non-audit services policy which is available in the governance section of easyJet’s corporate website, http://corporate.easyJet.com. 57 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report continued NOMINATIONS COMMITTEE JOHN BARTON, CHAIR OF THE NOMINATIONS COMMITTEE During the year the Committee undertook a search for a new Chief Financial Officer, reviewing the make-up of the Board Committees given the new Board make up at the beginning of the year, ensuring that the newly appointed NEDs were embedded in the Board and continuing to review succession plans within the Board and the Executive Management Team. Membership as at 30 September 2015 (members are independent Non-Executive Directors and the Non-Executive Chairman of the Board) Members of the committee • John Barton (appointed Chair effective from 1 December 2014) • Charles Gurassa • François Rubichon Turn to page 60 for meeting attendance table Key responsibilities • Keeping under review the composition, structure and size of, and succession to, the Board and its Committees. • Succession planning for senior executives and the Board. • Identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise. • Evaluation of the balance of skills, knowledge, experience and diversity on the Board. Highlights of the 2015 financial year • Overseeing the selection process and appointment of the new Chief Financial Officer and a new Non-Executive Director. • Consideration of the appointments to the Board Committees following the change in Board composition. • Reviewing management’s succession plans for senior executive positions. 58 Board appointments process The Committee adopts a formal and transparent procedure for the appointment of new Directors to the Board. The Board’s practice is to use external recruitment consultants for appointing Directors and as such, terms were negotiated with JCA Group Limited (JCA) to act as easyJet’s search consultants for the appointment of a new Chief Financial Officer. Other than providing search consultancy services, JCA has no connection with the Company. JCA was provided with a brief of the desired candidate profile based on merit and against objective criteria, and their services were used to conduct a search to identify suitable candidates. A list of potential candidates was assessed against these criteria and a number were interviewed by members of the Board and Executive Management Team. Andrew Findlay was appointed as Chief Financial Officer, effective 2 October 2015. While the Board’s practice is to use external search consultants for appointing Directors, there are occasions where an individual with particular relevant qualifications is identified as a potential candidate to join the Board as a Non-Executive Director. This was the case with Chris Browne and therefore no external search consultancy or open advertising was used. Once the committee became aware of her availability, it reviewed her experience and skills and she was interviewed by members of the Board. She was appointed to become a Non-Executive Director with effect from 1 January 2016. Diversity The Board recognises the benefits of having diversity across all areas of the Group and believes that this supports easyJet’s continued success and advantage. When considering the optimum make-up of the Board, the benefits of diversity of the Board are appropriately reviewed and balanced where possible, including in terms of differences in skills, industry experience, business model experiences, gender, race, disability, age, nationality, background and other contributions that individuals may make. The Committee continues to encourage diversity of business skills and experience, recognising that Directors with varying skill sets, capabilities and experience gained from different geographic and cultural backgrounds enhance the Board. In identifying suitable candidates the Committee will seek candidates from a range of backgrounds, with the final decision being based on merit against objective criteria. The Company has two female Directors, one being the Chief Executive. Following the appointment of Chris Browne, the Board will have 30% female representation from 1 January 2016. The Company’s policy on diversity applies across all levels of the organisation, and further details can be found in the Corporate responsibility section on pages 35 to 36. easyJet plc Annual report and accounts 2015FINANCE COMMITTEE IT GOVERNANCE AND OVERSIGHT COMMITTEE ADÈLE ANDERSON, CHAIR OF THE FINANCE COMMITTEE JOHN BROWETT, CHAIR OF THE IT GOVERNANCE AND OVERSIGHT COMMITTEE The Finance Committee continues to provide effective oversight of the Group’s treasury and funding policies and activities, ensuring that activities undertaken will not subject the Group to undesired levels of risk, and that treasury activities are appropriately aligned with Group strategy and support the Group financial performance. The IT Governance and Oversight Committee provides governance oversight, and gives independent validation and challenge, to one of the Company’s key business areas. Membership as at 30 September 2015 (all members are independent Non-Executive Directors) Membership as at 30 September 2015 (all members are independent Non-Executive Directors) • Adèle Anderson (Chair) • Andy Martin • Charles Gurassa (appointed to the Committee effective from 13 November 2014) • John Browett (Chair) • Adèle Anderson • Keith Hamill Turn to page 60 for meeting attendance table Turn to page 60 for meeting attendance table Keith Hamill stepped down from the Committee effective from 13 November 2014. Key responsibilities To review and monitor the Group’s treasury policies and treasury and funding activities, and the related risks. Highlights of the 2015 financial year The Committee undertook: • a review of debt funding alternatives; • a review of foreign exchange and interest rate hedging strategies; and • a review of the unearned revenue and cash position. Key responsibilities To provide independent oversight over the governance and controls relating to the IT business area, in particular covering the required resilience and change. Specifically the Committee: • monitors the strategic direction of the IT programme to ensure it supports easyJet’s long-term goals within the ambit of its strategic framework; • reviews the risks and controls associated with IT strategy to ensure appropriate mitigation is built into the implementation process; • monitors implementation of the IT strategy and ensures that changing business needs are being met in the context of the Company’s strategic goals and competitive position; and • provides financial oversight over the IT programmes as the Committee considers necessary, including ensuring an appropriate framework within which budgetary decisions are made. Highlights of the 2015 financial year The Committee has reviewed: • the prioritisation and sequencing of the various IT programmes; • the tender process for systems relating to an e-commerce platform; • the requirements and capacity of the operational platform; and • the capabilities required to deliver the IT programmes. 59 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report continued COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE The Company has, throughout the 2015 financial year, complied without exception with the provisions of the UK Corporate Governance Code issued in September 2014 (the Code), which is the version of the Code which applies to its 2015 financial year. The section below details how the Company has complied with the Code, available at www.frc.org.uk. The following disclosures are ordered into the sections as they appear in the Code. A. Leadership A.1 Role of the Board The Board is responsible for providing effective leadership to the airline. It does this by setting strategic priorities and overseeing their delivery in a way that enables sustainable long-term growth, while maintaining a balanced approach to risk within a framework of effective controls. The Board has a formal schedule of matters reserved for its decision which is available in the governance section of easyJet’s corporate website: http://corporate.easyJet.com. Day-to-day management responsibility rests with the Executive Management Team, listed on pages 50 to 51. These individuals are also the Directors and Company Secretary of the principal operating company, easyJet Airline Company Limited. The Board meets regularly, with nine scheduled meetings having been held during the year. The Directors’ attendance records at those meetings and Board Committee meetings held during the year are shown in the table below. In addition to those scheduled meetings, four ad hoc Board meetings were also arranged to deal with matters arising between scheduled meetings as appropriate. Non-Executive Directors are also encouraged to communicate directly with senior management between Board meetings. Attendance at scheduled meetings A.2 Division of responsibilities The roles of Chairman and Chief Executive are separate, set out in writing, clearly defined, and approved by the Board. They are available on easyJet’s corporate website: http://corporate. easyJet.com. The Chairman’s role is to lead the Board and ensure that it operates effectively. The Chief Executive’s role is the day-to-day running of the Group’s businesses and the development and implementation of strategy. A.3 The Chairman The Chairman, John Barton, sets the Board’s agenda and ensures that adequate time is available for discussion of all agenda items, in particular strategic issues. On his appointment in May 2013, the Board considered John Barton to be independent in character and judgement in accordance with the Code. A.4 Non-Executive Directors Charles Gurassa is Senior Independent Director and Deputy Chairman. In this role, Charles provides advice and additional support and experience to the Chairman as required, and is available to act as an intermediary for the other Directors if necessary. Charles is also available to address shareholders’ concerns that have not been resolved through the normal channels of communication with the Chairman, Chief Executive or other Executive Directors, and leads the appraisal of the Chairman’s performance annually in consultation with the other Non-Executive Directors in a meeting without the Chairman being present. The Non-Executive Directors, together with the Chairman, have also met without any Executive Directors present during the year. During the year, there were no unresolved concerns regarding the running of the Company. Number of scheduled meetings Executive Directors Carolyn McCall OBE(1) Chris Kennedy(2) Andrew Findlay Non-Executive Directors John Barton Charles Gurassa Keith Hamill OBE(3) John Browett Rigas Doganis(4) Adèle Anderson Andrew Martin Andreas Bierwirth(5) François Rubichon Board 9 Audit Committee 4 Remuneration Committee 3 Finance Committee 4 Safety Committee 4 Nominations Committee 2 IT Governance and Oversight Committee 6 1* 4* 2* 4 4 4 9 7 1* 9 9 9 8 1 9 9 9 9 1* 3* 3 3 1 3 3* 1* 1* 4 4 4 4* 3* 4 4 3 6* 3* 5 6 6 1* 2 2 1* 1* 1 1* 1* 1* 2 * Not a member of the Board or Committee – attendance at meeting by invitation. (1) Carolyn McCall stepped down as a member of the Safety Committee on 1 December 2014 but continued to attend meetings by invitation. (2) Chris Kennedy stepped down as a Director on 1 September 2015 and missed one Board meeting when on jury service. (3) Keith Hamill missed an IT Governance and Oversight Committee meeting due to the rearrangement of the meeting date at short notice conflicting with pre-existing arrangements. (4) Rigas Doganis stepped down as a Director on 1 December 2014 but continued to chair the Safety Committee. (5) Andreas Bierwirth joined the Safety Committee on 1 December 2014. 60 easyJet plc Annual report and accounts 2015B. Effectiveness B.1 Composition of the Board As at 30 September 2015, the Board comprised eight Non- Executive Directors (including the Chairman) and one Executive Director, Chris Kennedy having left the Company on 1 September 2015. The number of Executive Directors increased to two when Andrew Findlay joined on 2 October 2015. After giving thorough consideration to the matter, the Board considers Adèle Anderson, Dr. Andreas Bierwirth, John Browett, Charles Gurassa, Keith Hamill, Andy Martin and François Rubichon to be Non-Executive Directors who are independent in character and judgement. B.2 Appointments to the Board For information on the procedure for the appointment of new Directors to the Board, and the role of the Nominations Committee in this process, refer to the Nominations Committee report on page 58. B.3 Commitment Following the Board evaluation process, detailed further below, the Board is satisfied that each of the Directors is able to allocate sufficient time to the Company to discharge their responsibilities effectively. Contracts and letters of appointment with Directors are made available at the Annual General Meeting or on request. The standard terms and conditions of the appointment of Non- Executive Directors are also available in the governance section of easyJet’s corporate website: http://corporate.easyJet.com. Executive Directors are encouraged to take up non-executive positions in other companies or organisations. Carolyn McCall, the Chief Executive, has acted as Non-Executive Director at Burberry Group plc since September 2014. Appointment to such positions is subject to the approval of the Board which considers, amongst other things, the time commitment required. The Executive Management Team are permitted to hold one appointment on a Board or committee of a listed company so long as this is not thought to interfere with the business of the Group. B.4 Development On joining the Board, new members receive a tailored induction, organised by the Company Secretary, which covers amongst other things: • the business of the Group; • their legal and regulatory responsibilities as Directors; • briefings and presentations from relevant executives; and • opportunities to visit and experience easyJet’s business operations. To update the Directors’ skills, knowledge and familiarity with the Group, visits to bases are organised for the Board periodically, to assist its understanding of the operational issues that the business faces. The Board were invited to attend a country review Board and also observe the innovation day which was run in Milan in June 2015. A briefing paper is provided to Board members to update them on relevant developments in law, regulation and best practice, usually two to four times per year. Directors are encouraged to highlight specific areas where they feel their skills or knowledge would benefit from development as part of the annual Board evaluation process. The Board is confident that all its members have the knowledge, ability and experience to perform the functions required of a Director of a listed company. B.5 Information and Support All members of the Board are supplied with appropriate, clear and accurate information in a timely manner covering matters which are to be considered at forthcoming Board or Committee meetings. Should Directors judge it necessary to seek independent legal advice about the performance of their duties with the Company, they are entitled to do so at the Company’s expense. Directors also have access to the advice and services of the Company Secretary who is responsible for advising the Board on all governance matters and ensuring that Board procedures are complied with. The appointment and removal of the Company Secretary is a matter requiring Board approval. B.6 Evaluation A performance review of the Board, its Committees and Directors was undertaken with the assistance of an external facilitator, Independent Audit Limited, during the period. Independent Audit has no connection with the Company beyond evaluating the Board. It is intended to hold an externally facilitated review every three years. The evaluation process took place in the summer and involved interviews with each Director and a number of the Executive Management Team. Independent Audit Limited also reviewed the Board and committee papers over the past year and attended and observed the July Board meeting. The review extended to all aspects of Board and committee performance including composition and dynamics, the Chairman’s leadership, agenda and focus, clarity as to role with particular focus on its effectiveness in relation to strategic development, oversight of risk and succession planning, and priorities for change. Independent Audit Limited provided a report to the Board, which was included in the papers for the Board’s September meeting. Charles Gurassa, as Senior Independent Director, led a review of the Chairman’s performance and held a private meeting of the Non-Executive Directors without the Chairman present to discuss the Chairman’s performance. The Executive Directors and the Non-Executive Directors also reviewed and were satisfied with the Chairman’s time commitment to the Board and the business. The Chairman conducted a process of evaluating the performance and contribution of each Director which included a one-to-one performance evaluation and feedback discussion with each of them. The Board has started to determine appropriate actions in response to the areas highlighted in these reviews. It will also continue to review its procedures, effectiveness and development objectives in the year ahead. The Board considers that the performance review shows that each Director continues to contribute effectively and demonstrate commitment to the role (including commitment of time for Board and Committee meetings and any other duties). B.7 Re-election The Company’s Articles of Association require the Directors to submit themselves for re-election by shareholders at least once every three years. However, the Board has decided that all Directors will stand for re-election or election at each Annual General Meeting in accordance with the Code. 61 Strategic reportGovernanceAccountswww.easyJet.comCorporate governance report continued C. Accountability C.1 Financial and Business Reporting Please refer to: • page 84 for the Board’s statement on the Annual report and accounts being fair, balanced and understandable; • page 22 for the statement on the status of the Company and the Group as a going concern; and E. Relations with shareholders E.1 Dialogue with Shareholders The Company actively engages with investors and solicits their feedback. The Chairman met with shareholders to help maintain a balanced understanding of their issues and concerns. He has updated the Board on the opinions of investors. The views of shareholders and market perceptions are also regularly communicated to the Board via verbal briefings. • the Strategic report on pages 6-15 for an explanation of the Company’s business model and the strategy for delivering the objectives of the Company. easyJet has an investor relations department which runs an active programme to facilitate engagement with investors based around the financial reporting calendar. C.2 Risk Management and Internal Control The Board has carried out a robust assessment of the principal risks facing the Company and how those risks affect the prospects of the Company. Please refer to pages 24-29 for further information on the Company’s principal risks and uncertainties and page 22 for their impact on the prospects of the Company. The overall responsibility for easyJet’s systems of internal control and for reviewing their effectiveness rests with the Board. The Board has conducted an annual review of the effectiveness of the systems of internal control during the year, under the auspices of the Audit Committee. Further information on the Company’s risk management and internal control systems is given on page 63. C.3 Audit Committee and Auditors For further information on the Company’s compliance with the Code provisions relating to the Audit Committee and auditors, please refer to the Audit Committee report on pages 54-57. D. Remuneration For further information on the Company’s compliance with the Code provisions relating to remuneration, please refer to: • the Directors’ remuneration report on pages 64-83 for the level and components of remuneration (D.1); and • page 53 (the Remuneration Committee Report) for the procedure relating to remuneration (D.2). This year the programme has included one-to-one meetings with institutional investors, road shows and conferences. There is also regular communication with institutional investors on key business issues. During the course of the year the Chairman and Chief Executive have both met with a representative of easyGroup Holdings Limited, the Company’s largest shareholder, to discuss relevant matters. The Chief Financial Officer, Chris Kennedy, has also met separately with representatives of easyGroup Ltd (an affiliate of easyGroup Holdings Limited) to discuss matters relating to the management and protection of the “easyJet” and “easy” brands. E.2 Constructive use of the Annual General Meeting The Annual General Meeting gives all shareholders the opportunity to communicate directly with the Board and encourages their participation. Shareholders are given the opportunity to raise issues formally at the Annual General Meeting or informally with Directors after the meeting. All Directors normally attend the Annual General Meeting and the Chairs of the Committees are available to answer questions at the Annual General Meeting. 62 easyJet plc Annual report and accounts 2015RISK MANAGEMENT AND INTERNAL CONTROL The Board has overall responsibility for easyJet’s risk management and systems of internal control. Risk management easyJet has an established risk management process to ensure that significant risks are identified and mitigated where possible. For further details of the risk management process, the principal risks and uncertainties faced by the Group and the associated mitigating actions, please refer to pages 24-29. In order that risks are managed effectively, a number of activities are undertaken: • ongoing risk management and assurance is provided through the various monitoring reviews and reporting mechanisms that are embedded into the business operations; • regular operational (including safety), commercial, financial and IT functional meetings are held to review performance and to consider key risks and issues; (please refer to pages 52-53 for details of the Safety Committee); and • the Executive Management Team meets regularly to consider significant risks and overall business performance. To mitigate any significant risks identified, the Directors review the effectiveness of internal controls, including operating, financial and compliance controls, by the following: • review by management of controls, which mitigate or minimise high-level risks, to ensure that they are in operation. The results of this review are reported to the Audit Committee and the Board which considers whether these high-level risks are being effectively controlled; and Internal control The responsibility for establishing and operating detailed control procedures lies with the Chief Executive. The internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives. By their nature, they can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Board has conducted an annual review of the effectiveness of the systems of internal control during the year, under the auspices of the Audit Committee. This included reviews of systems and controls relating to financial reporting processes and the preparation of the accounts. The internal financial control monitoring programme, administered by Internal Audit, has continued to enhance the review process. The internal control regime is supported by the operation of a whistleblower reporting function. The system is operated by a specialist external third-party service provider and allows employees to report concerns anonymously and in confidence. The Audit Committee has approved the processes and reporting structure for the function, and receives regular reports on its operation. Internal audit The Internal Audit function’s key objectives are to provide independent and objective assurance on risks and controls to the Board, Audit Committee and senior management, and to assist the Board in meeting its corporate governance and regulatory responsibilities. Its work is summarised in a risk-based audit plan, which is approved by the Audit Committee and updated on a rolling basis. Internal Audit reviews the extent to which systems of internal control: • are designed and operating effectively; • discussions with senior personnel throughout the Company. • are adequate to manage easyJet’s key risks; and This ensures key issues are escalated through the management team and, as appropriate, ultimately to the Board. • safeguard the Group’s assets. The Audit Committee undertakes an annual review of the appropriateness of the risk management processes to ensure that they are sufficiently robust to meet the needs of the Group (please refer to pages 54-57 for details of the Audit Committee’s responsibilities). The Head of Internal Audit reports to the Head of Risk and Tax and has direct access to the Chief Executive and the Chairman of the Audit Committee. The Head of Internal Audit is invited to, and attends, Audit Committee meetings throughout the year and reports regularly on Internal Audit reviews to the Executive Management Team. During the year, the effectiveness of the Internal Audit function was assessed by the Audit Committee. The role of the Internal Audit function and the scope of its work both continue to evolve to take account of changes within the business and emerging best practice. A formal audit charter is in place. 63 Strategic reportGovernanceAccountswww.easyJet.comDirectors’ remuneration report Annual statement by the chair of the remuneration committee companies for the three financial years ended 30 September 2015. The Group achieved average ROCE performance (including lease adjustments) of 20.0%, and the Company was ranked in the top decile in terms of TSR relative to FTSE 51-150 companies, reflecting exceptional performance over the period. This level of performance, reflecting a return of 236% for investment in easyJet shares, resulted in 100% of the awards vesting successfully, subject to continued employment to the vesting date. Remuneration policy for the 2016 financial year The Company’s remuneration policy was approved by shareholders at last year’s AGM in February 2015 and the current intention is that it will apply until the 2018 AGM. As such, we will not be asking shareholders to vote on the policy at the 2016 AGM. In reviewing the policy last year, one key conclusion of the Committee was that the Company’s remuneration policy should continue to be aligned with easyJet’s principles and the Committee is of the view that this remains the case. In line with our principles, and taking full account of the ‘best practice’ expectations of investors, we took the opportunity of simplifying our arrangements and 2015 was therefore the last time that we made Matching Share Awards under the LTIP. From 2016, awards will be made as Performance Shares only. The Committee remains confident that the policy is appropriate and that it satisfies our objective to operate a remuneration structure which successfully promotes the long-term success of the Company. The Committee has further reviewed the LTIP and has recalibrated the targets in line with the current key strategic focus and projected additional capital expenditure within the business. This has led to a rebalancing of the current performance metric from an equal split of ROCE and relative TSR to a condition based 70% on ROCE and 30% on TSR. The target range continues to be set taking into account internal projections and external views. The range is the same as last year with a small enhancement to pay out on achieving target expectations. This has been the subject of consultation with the Company’s major shareholders and the leading shareholder advisory bodies. The Committee believe these to be appropriate and demanding targets. In summary, our relatively straightforward remuneration consists of a base salary, pension contribution of 7%, benefit provision and, subject to stretching performance conditions, an annual bonus plan, part paid in cash and part deferred into shares, and shares awarded under an LTIP. Incentive pay is subject to clawback provisions, a post-vesting holding period operates for LTIP awards and significant share ownership guidelines apply. The basic salary of the Chief Executive increased by 1%, in line with the typical rate of increase being awarded across the Group. The increase will be effective from 1 January 2016. Changes to the Board We announced in January 2015 that our CFO, Chris Kennedy, would be leaving to take up another role. Chris subsequently stepped down from the Board and left the Company on 1 September 2015. We are delighted that Andrew Findlay has joined us as CFO from 2 October 2015. Chris Kennedy worked the majority of his notice period and will not receive any payment in lieu of the balance of his notice period after leaving the Company. In line with the Company’s remuneration policy, following his resignation, Chris was not eligible to receive a bonus for the 2015 financial year. Under the rules of the LTIP, any unvested LTIP awards after the date of departure lapsed, and all benefits also ceased. CHARLES GURASSA, CHAIR OF THE REMUNERATION COMMITTEE Performance of the Group in the 2015 financial year easyJet has continued to deliver sustainable returns and growth for its shareholders. The key highlights are as follows: • profit before tax up by 18% to £686 million; • 1.7 percentage point growth in return on capital employed (ROCE) (including lease adjustments) from 20.5% in 2014 to 22.2% in 2015; • increased ordinary dividend with a proposed ordinary dividend of 55.2 pence per share; • on-time performance was 80%, marginally above the threshold for the year; and • total cost per seat (excluding fuel at constant currency) and customer satisfaction outcomes for the year were below bonus thresholds for the year. Aligning remuneration policy with Company principles Simple and cost-effective approach – In line with our low-cost and efficient business model, the Committee has chosen to set a simple pay package against the market. For example, our Executive Directors do not receive the Executive benefits that can be found in most organisations (see page 66). Support the stated business strategy of growth and returns – Performance is assessed against a range of financial, operational and longer-term targets ensuring value is delivered to shareholders, and Directors are rewarded for the successful delivery of the key strategic objectives of the Company. Pay for performance – Remuneration is heavily weighted towards variable pay, dependent on performance. This ensures that there is a clear link between the value created for shareholders and the amount paid to our Executive Directors. Key pay outcomes in respect of the 2015 financial year – Annual bonuses are based on profit before tax and key operational and financial targets. A bonus of 66% of the maximum was awarded to the Chief Executive in respect of the 2015 financial year. This reflects the strong results the Group has achieved. One-third of the bonus earned is subject to compulsory deferral for three years. In light of the resignation during the year of Chris Kennedy, the Chief Financial Officer, he is not eligible to receive a bonus award in respect of the 2015 financial year. Under the Long Term Incentive Plan (LTIP), Performance Share Awards made in December 2012 are due to vest in December 2015. These awards are based on a combination of average ROCE performance (including lease adjustments) and relative total shareholder return (TSR) compared to FTSE 51-150 64 easyJet plc Annual report and accounts 2015OUR REMUNERATION POLICY What is the role of our Remuneration Committee? The Remuneration Committee has responsibility for determining remuneration for the Executive Directors and the Chairman of the Board. The Committee also reviews the remuneration of the Group’s most senior executives in consultation with the Chief Executive. The Committee takes into account the need to recruit and retain executives and ensure that they are properly motivated to perform in the interests of the Company and its shareholders, while paying no more than is necessary. What does the Committee consider when setting remuneration? When setting the policy for Executive Directors’ remuneration, the Committee takes into account total remuneration levels operating in companies of a similar size and complexity, the responsibilities of each individual role, individual performance and an individual’s experience. Our overall policy, having had due regard to the factors noted, is to weight remuneration towards variable pay. This is typically achieved through setting base pay at up to market median levels, offering very modest pension and benefits, and above-market variable pay opportunities linked to the achievement of demanding performance targets. In setting remuneration for the Executive Directors, the Committee takes note of the overall approach to reward for employees in the Group. Salary increases will ordinarily be (in percentage of salary terms) in line with those of the wider workforce. The Committee does not formally consult directly with employees on executive pay but does receive periodic updates from the Group People Director. The Committee also considers developments in institutional investors’ best practice expectations and the views expressed by shareholders during any dialogue. How do we take into account the views of shareholders when we determine the remuneration policy? easyJet remains committed to shareholder dialogue and takes an active interest in voting outcomes. We consult extensively with our major shareholders when setting our remuneration policy. If any of these shareholders were to be opposed to our policy, we would endeavour to meet with them, as appropriate, to understand and respond to any issues they may have. The policy set out below applies to awards granted from the 2013 financial year onwards. Awards granted under the previous policy are subject to different performance measures (typically Return on Equity (ROE) or ROCE as the sole performance measure), have different award levels and may be earned in line with the terms of their grant in due course. Details of all the outstanding share awards granted to existing Executive Directors are set out in the Annual Report on Remuneration. On joining the Board on 2 October 2015, Andrew Findlay’s base salary was set at £425,000. The intention on joining was to set the salary at a discount to the market level but with a view that it would be brought up to the mid-market level as he gained experience in the role. The Committee therefore intends to increase his salary to £500,000 in equal increments over the next two to three years subject to individual and Company performance. The Committee has taken account of easyJet’s policy of providing benefits and pension at modest levels and the weighting on variable pay in the overall package in determining the salary level. Andrew will also receive a cash alternative to pension of 7% of salary, annual bonus opportunity of 175% of salary, annual LTIP award of 200% of salary, and some modest benefits. This package is consistent with our remuneration policy. In addition, in order to secure the appointment, certain buy-out arrangements have been agreed, to compensate Andrew for incentive awards forfeited from his previous employer. The Committee has taken particular care in ensuring that these arrangements are appropriate in light of our policy, the expectations of institutional investors, where a buy-out takes place, and replicate, as closely as possible, the expected value, form and time horizons of the forfeited awards. Shareholder feedback easyJet is committed to maintaining an open and transparent dialogue with shareholders. The objective of this report is to communicate clearly how much the Executive Directors are earning and how this is linked to performance. As always, I welcome any comments you may have. CHARLES GURASSA Chair of the Remuneration Committee 16 November 2015 WHAT IS IN THIS REPORT? This report sets out easyJet’s remuneration policy for Executive and Non-Executive Directors, describes the implementation of that policy and discloses the amounts earned relating to the year ended 30 September 2015. The report complies with the provisions of the Companies Act 2006 and Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The report has been prepared in line with the recommendations of the UK Corporate Governance Code and the requirements of the UKLA Listing Rules. The Directors’ remuneration policy was approved by shareholders in a binding vote at the 2015 AGM on 12 February 2015. The policy took formal effect from the date of approval and the intention is that it will apply until the 2018 AGM. A summary of the policy has again been included in this report (set out on pages 61 to 67) for the purposes of clarity and transparency. The Annual Statement by the Chairman of the Remuneration Committee (set out on pages 64 to 65) and the Annual Report on Remuneration (set out on pages 71 to 80) will be subject to an advisory vote at the AGM. 65 Strategic reportGovernanceAccountswww.easyJet.comDirectors’ remuneration report continued Framework used to assess performance and provisions for the recovery of sums paid The Committee considers individual salaries at the appropriate Committee meeting each year after having due regard to the factors noted in operating the salary policy. No recovery provisions apply to salary. Element, purpose and link to strategy Salary To provide the core reward for the role. Sufficient level to recruit and retain individuals of the necessary calibre to execute the Company’s business strategy Operation (including maximum levels where applicable) Base salaries are normally reviewed annually, with changes effective from 1 January. Salaries are typically set after considering salary levels in companies of a similar size and complexity, the responsibilities of each individual role, progression within the role, individual performance and an individual’s experience. Our overall policy, having had due regard to the factors noted, is normally to target salaries at the market median level. Salaries may be adjusted and any increase will ordinarily be (in percentage of salary terms) in line with those of the wider workforce. Increases beyond those granted to the wider workforce (in percentage of salary terms) may be awarded in certain circumstances such as where there is a change in responsibility, progression in the role, experience or a significant increase in the scale of the role and/or size, value and/or complexity of the Group. Salary levels for current incumbents, effective from 1 January 2016, are as follows: • Chief Executive: £705,600. • Chief Financial Officer: £425,000 Benefits In line with the Company’s policy to keep remuneration simple and consistent. Executive Directors receive modest personal accident and life assurance cover (0.5 x salary), at similar levels as the wider UK workforce. The cost to the Company of providing these benefits may vary from year to year depending on the level of the associated premium. Not applicable. No recovery provisions apply to benefits. Executive Directors receive no other conventional executive company benefits. Executive Directors can pay for voluntary benefits, where Company purchasing power may provide an advantage to employees. Executive Directors are also eligible to participate in any all-employee share plans operated by the Company, in line with HMRC guidelines currently prevailing (where relevant), on the same basis as for other eligible employees. Should it be appropriate to recruit a Director from overseas, flexibility is retained to provide benefits that take account of those typically provided in their country of residence (e.g. it may be appropriate to provide benefits that are tailored to the unique circumstances of such an appointment as opposed to providing the benefits detailed above). Necessary expenses incurred undertaking Company business are reimbursed so that Executive Directors are not worse off on a net of tax basis for fulfilling Company duties. Defined contribution plan with the same monthly employer contributions as those offered to eligible employees in the wider UK workforce, of 7% of base salary. A cash alternative may be considered. Not applicable. No recovery provisions apply to employer pension contributions. While individuals are not obliged to make contributions, easyJet operates a pension salary sacrifice arrangement whereby individuals can exchange part of their salary for Company paid pension contributions. Where individuals exchange salary this reduces employer National Insurance contributions. easyJet credits half of this reduction (currently 6.9% of the salary exchanged) to the individual’s pension plan. Pension To provide employees with long-term savings via pension provisions in line with the Company’s strategy to keep remuneration simple and consistent. 66 easyJet plc Annual report and accounts 2015Element, purpose and link to strategy Annual bonus To incentivise and recognise execution of the business strategy on an annual basis. Rewards the achievement of annual financial and operational goals. Compulsory deferral provides alignment with shareholders. Operation (including maximum levels where applicable) Maximum opportunity of 200% of salary for Chief Executive and 175% of salary for other Executive Directors. One-third of the bonus earned is subject to compulsory deferral into shares (or equivalent) in a Deferred Annual Bonus Plan (DABP), typically for a period of three years, and is normally subject to continued employment. The remainder of the bonus is paid in cash. Dividend equivalent payments may be made (in cash or shares) under the DABP, at the time of vesting and may assume the reinvestment of dividends. All bonus payments are at the discretion of the Committee, as shown following this table. LTIP Performance Share Award To incentivise and recognise execution of the business strategy over the longer term. Rewards strong financial performance and sustained increase in shareholder value. Each year LTIP awards may be granted subject to the achievement of performance targets. Awards normally vest over a three-year period. The maximum opportunity contained within the plan rules for Performance Share Awards is 250% of salary (with awards up to 300% of salary eligible to be made in exceptional circumstances, such as recruitment). The normal maximum face value of annual awards will be 250% of salary for the Chief Executive and 200% of salary for other Executive Directors. A dividend equivalent provision exists which allows the Committee to pay dividends on vested shares (in cash or shares) at the time of vesting and may assume the reinvestment of dividends. A holding period applies to share awards granted in the financial year ended 30 September 2015 and beyond. The holding period will require the Executive Directors to retain the after-tax value of shares for 24 months from the vesting date. Share ownership To ensure alignment between the interests of Executive Directors and shareholders. 200% of salary holding required for the Chief Executive and 175% of salary for the Chief Financial Officer which is expected to be reached within five years of appointment. Executive Directors are required to retain half of the post-tax shares vesting under the LTIP until the guideline is met. Framework used to assess performance and provisions for the recovery of sums paid Bonuses are based on stretching financial, operational and, in some cases, personal/ departmental performance measures, as set and assessed by the Committee in its discretion. Financial measures (e.g. profit before tax) will represent the majority of bonus, with other measures representing the balance. A graduated scale of targets is set for each measure, with 10% of each element being payable for achieving the relevant threshold hurdle. Safety underpins all of the operational activities of the Group and the bonus plan includes provision that enables the Remuneration Committee to scale back the bonus earned in the event that there is a safety event which it considers warrants the use of such discretion. The cash and deferred elements of bonuses are subject to provisions which enable the Committee to recover the cash paid (clawback) or to lapse the associated deferred shares (malus) in the event of a misstatement of results for the financial year to which the bonus relates, or an error in determining the cash bonus or the number of shares comprising a deferred share award, within three years of the payment of the cash bonus. LTIP awards vest based on three-year performance against a stretching range of financial targets and relative TSR performance set and assessed by the Committee in its discretion. Financial targets will determine vesting in relation to at least 50% of awards. In order for the TSR portion of the award to be earned, the Company’s absolute TSR performance must also be positive over the performance period. 25% of each element vests for achieving the threshold performance target with 100% of the awards being earned for maximum performance. (There is straight-line vesting between these points). The LTIP includes provisions which enable the Committee to recover value in the event of a misstatement of results for the financial year to which the vesting of awards related, or an error in calculation when determining the vesting result within three years of the vesting (i.e. clawback provisions apply). The mechanism through which the clawback can be implemented enables the Committee to: (i) reduce the outstanding LTIP share awards (i.e. malus provisions may be used to effect a clawback), or (ii) for the Committee to require that a net of tax balancing cash payment be made. Not applicable. 67 Strategic reportGovernanceAccountswww.easyJet.comDirectors’ remuneration report continued What discretion is retained by the Committee in operating its incentive plans? The Committee will operate the annual bonus plan, LTIP and Deferred Annual Bonus Plan according to their respective rules (or relevant documents) and in accordance with the Listing Rules where relevant. The Committee retains discretion, consistent with market practice, in a number of regards to the operation and administration of these plans. These include, but are not limited to, the following in relation to the LTIP and Deferred Annual Bonus Plan: • the participants; • the timing of grant of an award; • the size of an award; • the determination of vesting; • discretion required when dealing with a change of control or restructuring of the Group; • determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen; • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and • the annual review of performance measures and weighting, and targets for the LTIP from year to year. In relation to the annual bonus plan, the Committee retains discretion over: • the participants; • the timing of grant of a payment; • the determination of the bonus payment; • dealing with a change of control; • determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen; and • the annual review of performance measures and weighting, and targets for the annual bonus plan from year to year. In relation to both the Company’s LTIP and annual bonus plan, the Committee retains the ability to adjust the targets and/or set different measures if events occur which cause it to determine that the conditions are no longer appropriate (e.g. material acquisition and/or divestment of a Group business), and the amendment is required so that the conditions achieve their original purpose and are not materially less difficult to satisfy. Any use of the above discretions would be explained in the Annual Report on Remuneration and may be the subject of consultation with the Company’s major shareholders. The use of discretion in relation to the Company’s Save As You Earn and Share Incentive Plans will be as permitted under HMRC rules and the Listing Rules. Details of share awards granted to existing Executive Directors are set out on page 75 of the Annual Report on Remuneration. These remain eligible to vest based on their original award terms. How were the performance metrics chosen and how were the performance targets set? The performance metrics used for the annual bonus plan and LTIP have been selected to reflect the Group’s key performance indicators. Profit before tax is used to assess annual performance as this reflects how successful the Company has been in managing operations effectively (e.g. in maximising profit per seat whilst maintaining a high load factor). The balance is determined based on how well the Company performs against other specific key performance indicators set annually (e.g. on-time performance and customer satisfaction) to ensure that Executive Directors are motivated to deliver across a scorecard of objectives. Since safety is of central importance to the business, the award of any bonus is subject to an underpin that enables the Remuneration Committee to reduce the bonus earned in the event that there is a safety event that it considers warrants the use of such discretion. LTIP awards are earned for delivering performance against ROCE and relative TSR targets. These seek to assess the underlying financial performance of the business while maintaining clear alignment between shareholders and Executive Directors. Targets are set based on a sliding scale that takes account of relevant commercial factors. Only modest awards are available for delivering threshold performance levels with maximum awards requiring substantial outperformance of challenging plans. No performance targets are set for Save As You Earn and Share Incentive Plan awards since these form part of all-employee arrangements that are purposefully designed to encourage employees across the Group to purchase shares in the Company. Have LTIP Awards always been granted subject to the same performance targets? The LTIP, under which the Performance and Matching Share Awards are granted, was approved by shareholders in 2008. Further details on how the awards are structured and operated are set out in the plan rules which are available, on request, from the Company. How does the executive pay policy differ from that for other easyJet employees? The remuneration policy for the Executive Directors is more heavily weighted towards variable pay than for other employees, to make a greater part of their pay conditional on the successful delivery of business strategy. This aims to create a clear link between the value created for shareholders and the remuneration received by the Executive Directors. However, in line with the Company’s policy to keep remuneration simple and consistent, the benefit and pension arrangements for the current Executive Directors are on the same terms as those offered to eligible employees in the wider workforce. 68 easyJet plc Annual report and accounts 2015How much could the Executive Directors earn under the remuneration policy? A significant proportion of remuneration is linked to performance, particularly at maximum performance levels. The charts below show how much the Chief Executive and Chief Financial Officer could earn under easyJet’s remuneration policy (as detailed above) under different performance scenarios (based on their salaries as at 2 October 2015 – Chief Financial Officer’s date of joining). The following assumptions have been made: Minimum (performance below threshold) – Fixed pay only with no vesting under any of easyJet’s incentive plans. In line with expectations – Fixed pay plus a bonus at the mid-point of the range (giving 50% of the maximum opportunity) and vesting of 37.5% of the maximum under the LTIP. Maximum (performance meets or exceeds maximum) – Fixed pay plus maximum bonus and maximum vesting under the LTIP. Fixed pay comprises: • salaries – salary effective as at 2 October 2015; • benefits – amount received by each Executive Director in the 2015 financial year; • pension – employer contributions or cash-equivalent payments received by each Executive Director in the 2015 financial year; and • Free and Matching Shares under the all-employee share incentive plan. The scenarios do not include any share price growth or dividend assumptions. CHIEF EXECUTIVE Below threshold In line with expectations Exceeds target 100% £752,000 36% 33% 31% £2,106,000 19% 36% 45% £3,896,000 CHIEF FINANCIAL OFFICER Below threshold In line with expectations Exceeds target 100% £460,000 40% 32% 28% £1,150,000 22% 36% 42% £2,053,000 Fixed pay Annual Bonus LTIP (Performance) It should be noted that since the analysis above shows what could be earned by the Executive Directors based on the remuneration policy described above (ignoring the potential impact of share price growth), the numbers will be different to the values included in the table on page 73 detailing what was actually earned by the Executive Directors in relation to the financial year ended 30 September 2015, since these values are based on the actual levels of performance achieved to 30 September 2015 and include the impact of share price growth in relation to share awards. What are the Executive Directors’ terms of employment? Under the Executive Directors’ service contracts both parties are required to give 12 months’ notice of termination of employment. For Executive Directors, if notice is served by either party, the Executive Director can continue to receive basic salary, benefits and pension for the duration of their notice period during which time the Company may require the individual to continue to fulfil their current duties or may assign a period of garden leave. The policy for a new hire would be based on similar terms and will also include the ability for easyJet to make a payment in lieu of notice of up to 12 monthly instalments which would be reduced if alternative employment was taken up. Under the current Chief Executive’s contract, the Company, by mutual consent, may elect to make a payment in lieu of notice equivalent in value to 12 months’ basic salary, payable in monthly instalments which would be subject to mitigation if alternative employment is taken up during this time. Alternatively, this payment may be paid as a lump sum. Bonus payments may be made, payable in cash, on a pro-rata basis, but only for the period of time served from the start of the financial year to the date of termination and not for any period in lieu of notice. Any bonus paid would be subject to the normal bonus targets, tested at the end of the financial year. The current Chief Executive has a contractual entitlement to such a pro-rated payment under her service contract, other than in the cases of resignation or termination resulting from gross misconduct. These provisions do not apply to the Chief Financial Officer. In relation to a termination of employment, the Committee may make any statutory entitlements or payments to settle or compromise claims in connection with a termination of any existing or future Executive Director as necessary. The Committee also retains the discretion to reimburse reasonable legal expenses incurred in relation to a termination of employment and to meet any outplacement costs if deemed necessary. The Executive Directors’ service contracts and the Non- Executive Directors’ letters of appointment are available for inspection by shareholders at the Company’s registered office. What is the policy when an Executive Director leaves or there is a takeover? The rules of both schemes (LTIP and Deferred Annual Bonus Plan) set out what happens to awards if a participant ceases to be an employee or Director of easyJet before the end of the vesting period. Generally, any outstanding share awards will lapse on such cessation, except in certain circumstances. If an Executive Director ceases to be an employee or Director of easyJet as a result of death, injury, retirement, the sale of the business or company that employs the individual, or any other reason at the discretion of the Committee, then they will be treated as a ‘good leaver’ under the relevant plan’s rules. Under the Deferred Annual Bonus Plan, the shares for a good leaver will normally vest in full on the normal vesting date (or on cessation of employment in the case of death) and if the award is in the form of an option, there is a 12-month window in which the award can be exercised. Awards structured as options which have vested prior to cessation can be exercised within 12 months of cessation of office or employment. 69 Strategic reportGovernanceAccountswww.easyJet.comDirectors’ remuneration report continued Under the LTIP, a good leaver’s unvested awards will vest (either on the normal vesting date or the relevant date of cessation, as determined by the Committee) subject to achievement of any relevant performance conditions, with a pro-rata reduction to reflect the proportion of the vesting period served. The Committee has the discretion to disapply time pro-rating if it considers it appropriate to do so. A good leaver may exercise their vested awards structured as options for a period of 12 months following the individual’s cessation of office or employment, whereas unvested awards may be exercised within 12 months of vesting. In determining whether an Executive Director should be treated as a good leaver, and the extent to which their award may vest, the Committee will take into account the circumstances of an individual’s departure. In the event of a takeover or winding-up of easyJet plc (which is not part of an internal reorganisation of the easyJet Group, in circumstances where equivalent replacement awards are not granted) all awards will vest subject to, in the case of LTIP awards, the achievement of any relevant performance conditions with a pro-rata reduction to reflect the proportion of the vesting period served. The Committee has discretion to disapply time pro-rating if it considers it appropriate to do so. In the event of a takeover, the Committee may determine, with the agreement of the acquiring company, that awards will be exchanged for equivalent awards in another company. What is the policy on Executive Directors holding external appointments? Executive Directors are permitted to accept one appointment on a board or committee of a listed company so long as this is not thought to interfere with the business of the Group. Any fees received in respect of these appointments are retained directly by the relevant Executive Director. What would the remuneration policy be if a new Director was appointed? Base salary levels will be set in accordance with easyJet’s remuneration policy, taking into account the experience and calibre of the individual (e.g. typically up to market median levels but salaries above or below this level may be set dependent upon the level of the individual). Where it is appropriate to offer a lower salary initially, a series of increases to achieve the desired salary positioning may be given over the following few years subject to individual performance. Benefits will be provided in line with those offered to other employees, with relocation expenses/ arrangements provided if necessary. easyJet may offer a cash amount on recruitment, payment of which may be staggered, to reflect the value of benefits a new recruit may have received from a former employer. Should it be appropriate to recruit a Director from overseas, flexibility is retained to provide benefits that take account of those typically provided in their country of residence (e.g. it may be appropriate to provide benefits that are tailored to the unique circumstances of such an appointment). The maximum level of variable pay that may be offered on an ongoing basis and the structure of remuneration will be in accordance with the approved policy detailed above, i.e. at an aggregate maximum of up to 450% of salary (200% annual bonus and 250% Performance Shares under the LTIP), taking into account annual and long-term variable pay. This limit does not include the value of any buy-out arrangements. Different performance measures may be set initially for the annual bonus, taking into account the responsibilities of the individual, and the point in the financial year that they joined. Any incentive offered above this limit would be contingent on the Company receiving shareholder approval for an amendment to its approved policy at its next General Meeting. The above policy applies to both an internal promotion to the Board or an external hire. In the case of an external hire, if it is necessary to buy out incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer), this would be provided for taking into account the form (cash or shares), timing and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited. Replacement share awards, if used, will be granted using easyJet’s share plans to the extent possible, although awards may also be granted outside these schemes if necessary and as permitted under the Listing Rules. In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be paid according to its terms of grant (adjusted as relevant to take into account the Board appointment). On the appointment of a new Chairman or Non-Executive Director, fees will be set taking into account the experience and calibre of the individual. Where specific cash or share arrangements are delivered to Non-Executive Directors, these will not include share options or other performance-related elements. How are the Non-Executive Directors paid? The Chairman, Deputy Chairman and Non-Executive Directors receive an annual fee (paid in monthly instalments). The fee for the Chairman is set by the Remuneration Committee and the fees for the Deputy Chairman and Non-Executive Directors are approved by the Board, on the recommendation of the Chairman and Chief Executive. What are the terms of appointment of the Non-Executive Directors? The Chairman, Deputy Chairman and Non-Executive Directors’ terms of appointment are recorded in letters of appointment, which are usually renewed every three years. The required notice from the Company is three months in all cases. The Non- Executive Directors are not entitled to any compensation on loss of office. 70 easyJet plc Annual report and accounts 2015Element Purpose and link to strategy Operation (including maximum levels where applicable) Fees To attract and retain a high- calibre Chairman, Deputy Chairman and Non-Executive Directors by offering market- competitive fee levels. The Chairman is paid an all-inclusive fee for all Board responsibilities. The other Non-Executive Directors receive a basic Board fee, with supplementary fees payable for additional Board Committee responsibilities. The Chairman and Non-Executive Directors do not participate in any of the Company’s incentive arrangements. Fee levels are reviewed on a periodic basis, and may be increased, taking into account factors such as the time commitment of the role and market levels in companies of comparable size and complexity. Flexibility is retained to exceed current fee levels if it is necessary to do so in order to appoint a new Chairman or Non-Executive Director of an appropriate calibre. Necessary expenses incurred undertaking Company business will be reimbursed so that the Chairman and Non-Executive Directors are not worse off, on a net of tax basis, for fulfilling Company duties. No other benefits or remuneration are provided to the Chairman or Non-Executive Directors. Fee levels for current incumbents for the 2016 financial year are as follows: • Non-Executive Chairman: £300,000; • Non-Executive Director base fee: £60,000; • supplementary fee for Deputy Chairman and Senior Independent Director (SID) role: £25,000; and • supplementary fee for Chair of the Audit, Remuneration and Safety Committees: £15,000, and Finance Committee Chair: £10,000. ANNUAL REPORT ON REMUNERATION Who is on the Company’s Remuneration Committee? As at 30 September 2015, the members of the Committee were: Charles Gurassa (Chair), François Rubichon and John Browett. David Bennett stepped down from the Committee on 1 October 2014 and Professor Rigas Doganis stepped down from the Committee on 1 December 2014 following their retirement from the Board. The responsibilities of the Committee are set out in the Corporate Governance section of the Annual Report on page 53. The Chief Executive attends meetings by invitation and assists the Committee in its deliberations as appropriate. The Committee also receives assistance from the Group People Director and the Group Head of Reward. The Group Company Secretary acts as secretary to the Committee. No Directors are involved in deciding their own remuneration. The Remuneration Committee is advised by Hewitt New Bridge Street (HNBS), (an AON company). A sister company in the AON Group also provides pension and flexible benefits administration services to the company. HNBS was appointed by the Committee in 2004. HNBS advises the Committee on developments in executive pay and on the operation of easyJet’s incentive plans. Total fees paid to HNBS in respect of services to the Committee during the 2015 financial year were £133,000. HNBS is a signatory to the Remuneration Consultants’ Group Code of Conduct. The Committee has reviewed the operating processes in place at HNBS and is satisfied that the advice it receives is independent and objective. How has the new CFO’s package been set? Andrew Findlay’s package is in line with that applicable to the previous CFO, and is in line with our policy, other than salary on appointment which has been set at £425,000 (with the previous CFO’s salary set at £430,800 at the time of his departure). In addition, certain performance related buy-out arrangements have been agreed to compensate Andrew Findlay for bonus and long-term incentive awards forfeited from his previous employer. The approach to the buy-out is in line with the Company’s policy on buy-out arrangements (and the expectations of institutional investors where a buy-out takes place). The payment was performance related in that it has been calculated so as to replicate the likely value and time horizons associated with the awards at the previous employer. The buy-out comprised: 1. A cash payment of equivalent value to the bonus he would have been eligible to receive from his previous employer in relation to the year of his departure. The payment was performance related in that the amount of the bonus was determined based on his former company’s reported disclosures of how the company performed against its bonus targets. The cash payment, amounting to £311,837, was paid in October 2015. The Committee was comfortable with providing this form and level of compensation since it replicated the amount of value forfeit in connection with joining easyJet. 71 Strategic reportGovernanceAccountswww.easyJet.comDirectors’ remuneration report continued 2. A performance adjusted award of 22,762 easyJet shares will be made to compensate for the forfeiture of the long-term incentive award he received in August 2013 from his previous employer. Since around two-thirds of the vesting period for this award had already run its course, the Committee assessed the extent to which the performance targets were likely to be met (based on current market forecasts) in respect of the shares comprising two-thirds of the award and converted this number of shares into an equivalent value of easyJet shares on joining. These will vest, subject to continued employment with easyJet, on 7 August 2016, so as to mirror the original time horizon of the award. A further award of 14,625 easyJet shares relating to the forfeiture of the August 2013 award was also granted. This award was calculated based on the value of one-third of the award at the time of joining easyJet, but these shares will only vest to the extent that the performance targets set for the 2013 easyJet LTIP award are met and continued employment to 17 December 2016. The Committee was comfortable with providing this form and level of compensation since it replicated its assessment of the value forfeit and also, in part, switched into easyJet performance on a pro-rata basis for part of the award. 3. An award of 39,923 easyJet shares will be made to compensate for the forfeiture of the award granted to the individual in August 2014. This award comprised an exchange of the maximum number of shares that could vest under his previous employers’ award which were then converted to easyJet shares on joining. These shares will only vest based on the extent to which the performance targets applying to the 2014 easyJet LTIP award are met and the individual remaining in employment until 19 December 2017, being the ordinary vesting date for the easyJet award and later than the vesting date of the original award at his former employer. The Committee was comfortable with providing this form of compensation given the performance period at the individual’s previous employer for this award had only recently commenced and so switching to an equivalent value in performance related easyJet shares resulted in alignment being achieved with the wider executive team at easyJet. Each of the replacement share awards detailed above will be subject to easyJet’s shareholding guidelines whereby Andrew Findlay will be required to retain at least half of the (after tax) number of shares exercised from the awards until he has built a shareholding that, when aggregated with his other easyJet shareholdings, is of equivalent value to 175% of salary. How will the remuneration policy be applied for the 2016 financial year? What are the Executive Directors’ current salaries? The current and proposed salaries of the Executive Directors are: What bonus will be awarded in respect of performance in the 2016 financial year? The maximum bonus opportunity remains at 200% of salary for the Chief Executive and at 175% for the Chief Financial Officer. The measures have been selected to reflect a range of financial and operational goals that support the key strategic objectives of the Company. The performance measures and weightings will be as follows: Measure Profit before tax On-time performance Customer satisfaction Operating costs (excluding fuel) per seat at constant currency Departmental objectives As a percentage of maximum bonus opportunity CEO 70% 10% 10% 10% – CFO 60% 10% 10% 10% 10% The proposed target levels for the 2016 financial year have been set to be challenging relative to the business plan. The Committee is comfortable that the bonus targets for both Executive Directors are appropriately demanding in light of their respective bonus opportunities. The targets themselves, as they relate to the 2016 financial year, are commercially sensitive. However, retrospective disclosure of the targets and performance against them will be provided in next year’s remuneration report unless they remain commercially sensitive. The safety of our customers and people underpins all of the operational activities of the Group and the bonus plan includes a provision that enables the Remuneration Committee to scale back the bonus earned in the event that there is a safety event that occurs that it considers warrants the use of such discretion. How will the LTIP be operated in relation to the 2016 financial year awards? The 2015 financial year was the last time that LTIP awards were made via a combination of Performance and Matching Share Awards. Matching Share Awards will no longer operate from the 2016 financial year onwards and LTIP awards will be made as Performance Shares only. The award levels for the Executive Directors in the 2016 financial year will be 250% of salary for the Chief Executive and 200% of salary for the Chief Financial Officer. The 2016 financial year LTIP awards will be subject to the following performance conditions: 1 January 2015 or on appointment to the Board salary £698,600 £425,000 1 January 2016 salary £705,600 £425,000 ROCE (70% of total award) Change 1% 0% CEO CFO(1) Below threshold (0% vesting) Threshold (25% vesting) On-target (50% vesting) Maximum (100% vesting) <15% 15% 18% 20% Below threshold (0% vesting) Threshold (25% vesting) Maximum (100% vesting) Upper quartile TSR (30% of total award)

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